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Gold & Silver in a LT rally


Mercury

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Updated 1H chart with 3 failed retests of the ST retrace channel line.  NMD at the latest one, which is an A-B-C.  If this holds and the price drops away a retest of the lower daily ending channel is on.  If the general market mood is one of Fed disappointment on Wednesday then precious metals may follow stock indices south, for a while at least.

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God and Silver remain in flux.  I can't trade it here.  Only a breakout of over head resistance is tradable long for me as another large leg down is still very much on the cards.  Plenty of other bett

Nothing much going on with Gold/Silver, the anticipated consolidation period continues.  The competing drivers of USD and Stocks/Bonds movements may be neutralising clear direction for now but in anyc

While Stocks and USD seem to be moving bearishly PMs are, intuitively, going bullish.  However unless we have just seem the definitive bull ending move on stocks (or perhaps despite this if it eventua

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Currently PMs and Stock indices appear to be in rough correlation (Fed/CB policy driven?  But for how long?  Not important right now).  Long term this wont last in my opinion but short/medium term the technical set ups (as posed previously) are pointing to a bearish phase on both.  On Gold we have had a clean break out of the ending channel (very similar to US large cap stocks - except of course that US stocks are at ATHs and Gold clear isn't).  We may see a brief retrace rally, maybe even a retest of the lower channel or breakout zone, before the next bearish move OR just a continuation down.

On my 4H chart you can see the ending channel and breakout.  The rally within the channel hit the Fib 50% before the drop began yesterday (before the Fed release - don't have to wait for data release if you are using technical analysis and this is where I went Short).  This rally could be either 1-2 or A-B but in either case a wave 3/C is next and that should a strong move down.  The first target is 1380 but this is shallow so I am expecting a test of the 1360 area in short order.  Note we could see a lower wave A at one of these levels so the form of the move down will be important in deciding the route being taken.  The crucial point here is that a break of the 1360 zone will indicate a likely test of the daily chart fib 50%, 1300 area, (that would be a retrace of the whole move up since Aug 2018).  Will also need to track stock indices as I think the correlation will probably hold for another round trip down up (unless this is the big one in which case at some point they will diverge as stocks plummet and PMs rally).  Time and price action will tell the tale.

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So stock indices appear to be rallying as the buy-the-dip boys kick in again, but is that all the drop we are going to get this time?  I doubt it, more likely for me it is a retrace (relief) rally to retest key support (now resistance) before another leg lower but that will probably not complete until the US markets open up.

In the event that stocks do rally on through I would expect to see a divergence with Gold as the signals remain strong for further bearish moves on Gold.  As I believe that stocks and PMs remain under the sway of the Fed policy short term I expect both to show further falls.

Specifically on Gold though I do also see a short term rally in the offing.  This is quite far behind stocks rallies so far but actually clearer from a technicals perspective.  On my 1H chart (below) I have a clean 1-5 down on yesterdays drop from the wave B/2 (brown) turning point.  There is a minor PMD at today's lows, which occurred at a decent zone of support (1400-05).  I now expect a relief rally that could carried to one of several key resistance points.  I have no way of knowing which will trigger and stocks price action on US open may inform this but the form of the price action on the rally will be a key factor (looking for an A-B-C form).  This could take all day or more to develop.  I would expect any Shorts above the channel line to be safe but personally I would cash of stop protect at BE anything below that line (which I do not have myself).  The retrace turn obviously offers a chance to get Short and the further price rises the more likely the turn become.  One to watch patiently I feel.

XAUUSD-1-hour_010819.thumb.png.3de9bdd9730b0900046e47ff78474bbb.png   

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Quite a set of price action moves on stock indices and Gold, not so much Silver, which is noteworthy I feel.  Got a bit of action on Oil too but FX was largely quiet.  US Bonds and Notes rallied, expecting lower interest rates (i.e. more Fed cuts) or just flight to safety?  If it is a flight to safety and this is the big one on stocks then naturally Gold would rally right?  And USD is signaling it may well turn and go bearish for a time at this juncture, good for Gold right?  That is the received wisdom.  The problem with received wisdom, and getting sucked into a sudden price move like we saw yesterday on Gold, is that the gut reaction is often wrong (well mine is anyway).  This is one reason many retail traders and investors find the markets so frustrating, the markets tend not to do what at face value seems logical and rational.  But that is because we can't know what is in the minds of the big market players.  This is why I use technical analysis to attempt to make some wider sense out of price action, which taken alone can be catastrophically misleading.  I don't rely purely on technicals but must also have a fundamentals backdrop.  I am long term Bullish on Gold and Silver BUT yesterday's price action has not changed the technical set up and I don't see any significant fundamentals change either.  The in-going thesis for the Fed rate decision was for Powell et al to disappoint.  Unless they cut 50 min that was always going to happen.  The suggestion in some circles is that they will circle the wagons and cut again quickly.  We might see signs of that in forthcoming speeches.  From a fundamentals perspective a disappointing Fed cut is bad for socks and bad for Gold (albeit it is still a cut...).  Stocks have reacted and Gold dropped initially too but then caught a bid.  Maybe the Trump tariff thing maybe something else, I don't know, no one does, except maybe the big market movers and they wont tell us.

So much for all that, what about the technicals?

The same situation as before still exists for me but my lower channel line is redrawn to accommodate yesterday's price action and now looks more like a parallel channel and cleaner.  The move up could be an A-B after a smaller internal A-B-C on the wave A.  The wave B (green), if correct touched the Fib88% and rebounded fast  to end the candle yesterday.  This points to a complex retrace that would end with a strong wave C down, breaking out of the lower channel line.  We should see a small 1-2 on the 1H/15min chart and drop to confirm.

The alternative scenario is that we get another touch on the upper channel line and then we see the drop from a repositioned wave 1 top.  I think it is 50/50 on these 2 from a technicals perspective.  Clearly a strong breakout to the upside negates the downside scenarios.

What is it Kipling said?  "If you can keep your head, while all around are loosing theirs..."  and so on.  Whether right or wrong on the assessment the key, for me, is to keep your head and not make snap decisions based on gut driven by a sharp move that you may not yet understand.  Unless you are a 1min chart scalper I guess but I know nothing about that.

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Gold has just arrived at a critical juncture for me.  If it is in an ending channel with a bearish phase to come it should turn around the current level and breakout below the lower channel line, then carry on down to whatever end.  If it is about to embark on that long term mega rally a lot of people are talking about (perhaps too many people right now) then it should break the upper channel line and associated resistance zone.  It may drop here and retest of course.

I am short/medium term bearish on gold for reasons previously laid out.

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Pretty much everyone is bullish gold right now and that may pose a problem for a breakout.  Also if stocks are executing yet another V shaped rebound then this isn't the big one and gold may run out of steam.  The techncials remain bearish, despite (or perhaps because of) the bullish trend of late.   The set up is the same as before for me so i would reiterate it but on the 1 and 4H chart I have a potential ending channel, almost vertical rally.  If this keels over at or before the overhead resistance an breakout out of the channel to the downside, while stocks and bonds rally then we could see a significant bearish retrace, despite what happens to the USD.  Obviously a breakout through that resistance brings up a strong rally.  Should resolve one way of the other soon.

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Gold is making every effort to breakout of key resistance but so far hasn't quite mustered the juice.  Could the rally strength be waning?  Momentum certainly suggests it may be with NMD on daily, 4H and 1H charts.  On the 4H there are 3 pin bar candles (third one in prog).  If this one fails to breakout...  Nice 1-5 up to the current level, which has just poked through my LT red line resistance (this isn't enough, it needs to close above - on the weekly/monthly chart!).  Strong moves often poke above/below resistance/support before reversing in my experience but quite often this is a sign of a breakout at the next test (a few months away in this case).  If there is a failure here then I expect a strong bearish move to recharge the market for another assault but the wider fundamentals backdrop would have to be perfect and it isn't yet for me, unless stocks drop massively again.

Looking also at Silver I see some similarities.  Silver too is seeking to breakout through long term resistance but has been trading in a range of late.  Doesn't look like a classic sideways consolidation to me, yet, although it may yet morph into that.  Rather it looks like a wave 1 top, again a classic 1-5 with a flag consolidation in the middle (bit further down than the middle showing the strong bullishness on this move but maybe that is a good reason to doubt the longevity this time?  Very strong NMD now on Daily and 1H, which was missing until recently.  Ideally I would be looking for another leg up to test resistance, maybe an overshoot, to complete a 1-5 and then if we see a strong rejection that could be that.

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VanEck Vectors Gold miners EFT unavailable to buy, "closing positions only" on IG.  May means they can't offset clients buys with their own buys in the real market place.  Means there is no one on the other side of the trade.  One of 2 things happens now:

  1. Price rockets until there are sellers
  2. Buyer exhaustion leads to price plummeting

Everyone is focused on stocks but PMs are gonna be wild!

Edited by Mercury
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@dmedin, what I am referring to is the following:

  1. Markets move in waves or phases: up/down; up/down and so on.  Sometimes these up/downs are overall rising and sometimes the opposite, which is how we get Bull and Bear markets - ok you know that!
  2. Before a market turns down it typically rises in a trend (short/medium/long term).  There trend is your friend, until the bend in the end.  A market will typically look very bullish in trend terms at the top.
  3. Contrarians view an all in zeitgeist either was as a warning that things are about to go into reverse.  This especially true at key turning points.  I went Long Gold down around 1200 when trend followers were telling me it was Bearish, this was one reason I went Long.  The analogy is that if everyone is on one side of the boat it will capsize unless some people run to the other side.
  4. If there is no one who wants to sell Gold right now then how can bulls buy?  So either the price jumps in large gaps, unusual in a highly liquid market like gold, until we reach a price people are willing to sell at or the market collapses back as people take fright, hence the options i posted.
  5. The simplest trading and investing maxim is buy low, sell high.  For trading that can be translated into take Longs at the bottom of a range and go short at the top of the range.  The trick is to identify the range and the likelihoods of the various scenarios in play, for that I use a variety of technical analysis, which I have shared in previous posts.  The exposure at these range extremes is low as if I am wrong I get stopped out quickly but the rewards potential is high.

At this point I do not know which will win out but I am prepared to take advantage of either when my criteria are met to trigger a trade.  For Gold I want to see a spike up and rebound back down through my ST up-sloping channel t trigger a Short and/or a small 1-2 down/up and drop.  If that doesn't occur and there is a breakout then the answer is go Long, but watch out for a fakeout.  We may well get a retrace drop in Stock indices that produces a panic buy in PMs and then a reversal that causes an exhaustion spike in the price, typically on low volume.

On Silver I would be expecting to see such a spike as Silver is more volatile than Gold but a spike and return back within the current price levels would be a bearish signal.

 

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@Mercury

 

That all sounds very true and reasonable however gold seems to be in a definite uptrend to me, so I would be buying dips.  I tried to short a couple of times recently thinking it must surely be due for a pullback but lost out.  If the underlying trend is up, I don't see any reason to short but rather instead to buy dips.  Unless there is evidence that the trend is turning, and there's no evidence of that for gold yet is there?

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If the market turns bearish at this juncture I expect it will drop a lot further than 1450 @dmedin.  Going Long there could be catching the falling knife.  All depends on a) a turn and b) the price action nature of the move down.  If the market turns at 1500 then with the level of NMD against it I would anticipate a significant bearish move until that negativity is eroded.  A breakout of the resistance area (or your wedge if it would be valid) would be a bullish signal to buy the breakout.

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As an aside, I'm starting to really dislike these sudden massive drops and immediate reversals of U.S. stocks.  It almost makes me want to avoid them altogether, along with the indices.  How can anyone trade such randomness?

If gold closes the week above 1500 then I am tempted to go long to see if it hits the next Fibonacci target of 1586.

Edited by dmedin
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So has Silver peaked?  Sure looks so.  On the Weekly chart it looks like a failed test of a long term resistance trend line and associated resistance zone.  As the week is not yet over this is inclusive so lets look at the daily.  Here we see that rejection on strong NMD and a 1-5 EWT count. If this holds below today then the bearish retrace is looking on.  On the 4H chart you can see the move on ore detail with a small 1-2 bullish retrace o set up the fast move down.  The price action on the 1H will be important to distinguish whether this is a medium term trend change or just a blip (note the LT trend remains bullish).

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Something similar happening on Gold with a potential resistance and channel overshoot and return back.  A small 1-2 bullish retrace followed by a small drop and channel lower line breakout.  Not as strong a set up not as definitive on price action but the saying, "as goes Silver, so goes Gold" springs to mind.  Or is it the other way around, certainly was for a few months there.

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I don't have the sophisticated skills that you do @Mercury but here all signs point to gold being in a 'very strong uptrend'.  There's no point whistling in the wind; don't go short when the trend is obviously and inexorably up.

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Well one of you is wrong...

The thing about trading is that different traders see different things.  If they didn't, if they all saw the same thing, the market wouldn't work, it would be in perfect equilibrium all the time and simple gap jump to the next perfect valuation.  This, by the way, is why value methods don't work in my opinion.  It is easy to be a value investor in a raging bull market...  The markets are voting machine, not a weighing machine (not my quote).  It is principally speculation and therefore it is all about sentiment.

Must I keep reiterating the same things over and over again?  The trend is your friend, until the bend in the end.  As a swing trader I am all about seeking that bend and understanding where in the inexorable up/down; down/up cycle.  It is not surprising, in fact it is expected, for trend followers to disagree with my analysis at key turning points, indeed if they did not I would be worried.  Trend followers, in general, including some of the well know hedge funds, follow the trend over the edge and then have to madly scramble to cover.  Sure some have trailing stop mechanisms but by then it is all over.  I don't have a problem with this it just isn't what I do.  When having a discussion with someone it is vital to know where they are coming from and we can all be right from our own perspectives, at least for a while...

I think my past post have been pretty clear on where I stand on both Gold and Silver and why.  I think the trend down from the 2011 highs is over, check out my many technical analysis posts on this thread for why.  I think both are in the process of, or have already, broken key resistance (more Gold than Silver in this case) but I feel like there is a strong case for a significant pull back before the uber rally really gets going, I have also posted on that previously.  All clear?

@dmedin, I have a lot of sympathy with your views,  I too would not go Short until I see reversal signals.  We are flirting with that now but nothing conclusive yet.  However, as with the recent scenario on the US large caps, and other stock indices, and therefore most of the individual stocks (as I know you like to look at these), to be successful one must be open minded to these trend change breakouts.  This is how I caught the Bearish fast drop at the end of last week and how I cashed for profit before the rally eroded my profits.

I will remind us of that @elle wisely said a little while ago, "every trend is destined o be broken" (or words to that effect.  It is the breakout a swing trader seeks.  It is the breakout that cements a trend change BUT in some cases we don't have to wait for that, if we identify a credible bottom, which I believe I have on Gold and Silver and traded it accordingly, which I also posted on previously.

Not sure how much more clarity I can offer.  Disagree if you like no problem.

 

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WITHIN THE LAST SEVERAL DAYS...

HSBC... Deutsche and some other BIG banks just loaned the PBOC 450 BILLION to help them prevent their currency from total collapse..

The backstory.. The CEO of HSBC has just been fired for it..

It was said China has 3 trillion in US reserves but now it is being revealed..

1 trillion was earmarked for the belt and road initiative and the other trillions have been tied up in swaps and derivatives as the currency has already dropped 30% to 7.5.

It is estimated the currency will eventually devalue another 40%.

... Long gold 😉 

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@TrendFollower

 

EWT, like TA in general, can be manipulated and twisted to explain any and every situation 'after the fact'.  It is so flexible that one can literally never admit to being wrong, there are no rules without potential expressions.

Or, as the professional technical analysts always say, 'Price may go up, or it may go down'.

That's the ONLY thing anyone can say with 100% certainty.   :D

 

 

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Well this is not a general trading strategy thread so if you want to discuss the whys and wherefores of EWT open a thread there and see if anyone is interested.  Or you could just research it like everyone else, no one is going to hand it to you on a plate.  Anyway in order to learn you have to put the effort in, no other way.

So back to Gold and Silver.  The week produced another rally phase and more price action data to work with (oh yes, technical analysis is based on past price action - stop press..!).  So is fundamentals analysis as it happens.  Silver in particular is at a critical juncture right now as it tests a long term down sloping trend line.  Whether it breaks this soon or falls away will be an important signal.  This is not hindsight, this is contemporaneous with price action.

Non Commercial Commitment of Traders (COT) data dropped back on Silver, which may indicate a weakening of conviction as we approach this critical juncture.  Gold COT however advanced this week to equal the most bullish readings since 2007 (which was July 2016 when both Long and net long).  In 2016 Gold was at a critical juncture too and the gold bugs were talking up a big rally, sound familiar?  Check out what happen after July 2016.  Not saying that will happen again but it is eminently possible and therefore it is a scenario that cannot be discounted yet, unless you are so convinced you cannot see anything else, which I consider a dangerous psychology when I notice it in myself, sort of hubris in the making...

On Silver the daily chart is showing bearish signals (negative divergence on several oscillators) over and above the COT data contrarian view.  These will be false if this is in a mega rally but if not then a significant retrace may be seen before that rally.

Overall both markets look like they are full bullish and long term I am bullish but there is a doubt as to whether we will get a significant retrace to "prime the pump" for a big rally.  Silver looks weaker than gold, unsurprisingly as gold gets all the coverage.  When Silver breaks it will break faster and this is the reason I am more interested in trading Silver than Gold.  Could Gold go into consolidation while Silver retraces down harder?  Sure.  In a long term trend, bullish for both these markets (how many times have you seen Silver and Gold trends diverge?), buy the dips is the best strategy.  Would it make sense to go Long now then?  Not for me.  I will only add Longs when I see a decent pull back and break through the key resistance area on Silver.  For me this is no longer about spotting the turn, I did that successfully months and months ago and went Long at the time while others were trying to tell me the trend hadn't changed (yeeeah!).  Now people are trying to tell me a bearish retrace is not possible (yeeeah!).  Bottom line here is that a trader must trust their own system and judgement and block out naysayers, especially those that do not understand their method and how it is used.

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@Mercury

 

You're absolutely right, the price could go either up or down in any given time frame.  EWT is a very nice and convoluted way to express this fundamental platitude.

Silver as a precious metal/source of value?  I think not.  Not since the 18th century anyway.  It's an industrial metal so its value will fall during recessions.

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Regarding the comment on Silver, I have heard this one before, may be a good topic for the market myths debate.  Here is a chart of 100 year historic silver prices, not adjusted for inflation.  What I see is Silver largely ignoring recessions in a a series of speculative spikes each one higher then the last after a U shaped bottom.  You can see the same thing on Gold, there are closely related and highly correlated.  I see no reason for a divergence now.  Silver is a market in and of itself that performs according to its own internal dynamics and is driven by sentiment just like any other market.  To trade it one must be open to its own internal eccentricities and price action.  In a world of buy low sell high what makes most sense on Silver right now?

https://www.macrotrends.net/1470/historical-silver-prices-100-year-chart'>Silver

 

516163358_historical-silver-prices-100-year-chart-2019-08-11-macrotrendsunadjusted.thumb.png.0d78c4a62ca058b7c2a0966b533ef219.png

 

 

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