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Gold & Silver in a LT rally

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Gold and Silver remain in lock step (funny that...) and looks to be in a rocket to the stars but took a wobble this week and whatever the reasons perhaps it was a precursor of a potential retrace bearish move, which is surely overdue.  With stocks apparently rising again maybe now is the time for professionals to take some profits, which would have the dual effect of dropping the market and offering lower reentry.  Who wouldn't want to do that if they could..?  If they knew every other professional would...

Whatever the whys and wherefores we can all agree that markets move in waves or zig-zags and we are due a zag on Gold and Silver.  When it is over I think we will see the enormous wave rally that some notables have been calling for.  Even trend followers would agree that in a massive trend you buy the dips (i am a trend follower too but only in wave 3s).  Are we at a dip now?  Unlike stocks, we are only at the start of this trend, especially in Silver, unless you believe Silver will detach from Gold and follow Copper instead, not much evidence for a Silver/Copper correlation though so I wouldn't bet the house on it...

It is my contention that Gold and Silver are gaining favour because of global political and economic uncertainty and no wonder, stocks are at impossible highs, the air is thin and the whole house of cards is being propped up by central bank largess, build on theories.  We are in uncharted territory and the only certainty is that markets do not go up up up for ever, could be time to pay the piper soon.  In this backdrop it is not surprising that traditional safe havens are popular, at least as a hedge.  But I don't think the rocket can really take off until all hell breaks loose and we are not yet there.  Maybe in a few months, hence I see a retrace down in precious metals first.

From a technicals perspective the long term turn and rally I have been talking about is surely now confirmed.  Even the trend followers who were negatively disposed to my thesis back then are now talking up the bullish trend...  The monthly chart shows that long term trend line support and the U shaped bottom that describes a head & shoulders pattern.  On shorter time frame charts I have a neckline for this H&S that could provide a zone for any potential retrace as such a pattern is quite common.  There is an alternative EWT labeling such that the blue 1-2 could be a pennant and the green 1-2 could retrace much further to hit that neckline.

On the 4H chart that sudden down move broke through a small expanding channel and then retested.  Overall the rally has achieved the Fib 88% but there was significant NMD on the top out after a clean 1-5 up.  Barring another higher high this currently looks like a strong retrace rally that could either be a 1-2 or an A-B, the former suggest a much longer retrace.  On the 1H chart there is NMD at the Fib 88% turn as well so there is a good chance that this move will break down into a medium term retrace move.  For swing traders are point on offer for Shorts but longer term spotting the turn will be important to add to long term Longs.

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In reply to Mercury I'd add the comment that gold and the precious metals group (PMG) tend to do well in a low interest rate environment. They do not pay a dividend so the premium for holding is therefore reduced. Gold in most other currencies (other than USD) has hit new record highs. It is especially so with a low REAL (as opposed to nominal) rate. We have the low rate but for gold and PMGS to really take off we need a bit more inflation. Sure there is a geo-political "safe haven" element but I'd say that has been more evident in the huge sovereign bond market and forcing short term rates even lower. Rates appear to be going more negative and this will be good for gold. If we get more inflation it will positively rocket. I'd be a buyer of gold on dips - which is what's happening at the moment after a good run up.

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That is a good additional point about rates @ChrisN, I have also mentioned the need for an uncertain rates backdrop to fuel PMs rally, we certainly have that with the Fed flipflops of late.  More broadly we have seen currency wars but these have not really captured the imagination of the MSM yet, doesn't make for great headlines I guess...  I think, as some credible commentators have said of late, that we will see currency wars ramp up in the coming months as Lagarde takes over from Draghi and Powell feels the pressure.  Japan will continue on with Abenomics, they don't know what else to do.  This is a bit new for China but they are showing all the signs of the same kind of interventions have have massive consumer bubbles domestically.  They are all desperate for inflation but it isn't coming so one of 2 things will surely happen next: either we suddenly get a super massive set of central bank policies that drop rates to zero or negative everywhere and a corresponding inflation explosion (yeah it aint gonna managed!) OR deflation.  It all feels like a coiled spring to me.  Under either scenario Gold is, well, golden...  No wonder it is surging.  Although I actually prefer the correlated Silver trade as it has more potential.

One additional point I forgot to include on my previous post, Gold non commercial COT data dropped off last week leaving the previous weeks reading as the all time high.  This is not conclusive alone but taken together with everything else is is something that I like to see at major turning points.  Early next week could tell the tale.

We can also look at SIlver for correlation.  Personally I would be very nervous about my thesis if I saw a divergence here.  Fortunately I don't, in fact if anything the case for a turn and retrace down on Silver is even greater.  The fundamentals are the same as for Gold.

On the Technicals front I see the following:

  • Very similar set up to Gold on the Monthly/Quarterly but in this case the drop was much greater, down to the Fib 78/78% zone on the very long term move, and there was a double bottom rather than a head & shoulders.
  • Currently price has just touched the overhead Triangle resistance trend line and rebounded off it this week with a sharp move down.  Interesting that both Gold and Silver did this and Stocks rebounded the other way.   US 2, 5 and 10 year notes also dropped sharply on the same day.  That's quite a few markets to manipulate at the same time...  Maybe it is something else?  Maybe it is sentiment turning?
  • There was very strong PMD at the wave C turn in 2016, which is nowhere near exhausted in my view (i.e. a lot more rally to come.  the breakout of the over head trend line is vital to this rally.
  • On the weekly chart you can see that price is currently in an historically strong congestion zone.  It would not be unreasonable to expect this to cause at least 1 retrace back to the bottom of that range.  For price to cut up swiftly through this congestion zone we would, I feel, need a lot stronger fundamentals case for chaos right now and it doesn't feel to me like we are there yet so I think a bearish retrace to gather momentum and wait for that case is on the cards.  Let's see the Fed blink and bring out the big guns and some further bad economic data, particularly from the US and China eh?  Also worth watching the bond market, Black Monday began in the Bond market, it is a much large market than stocks yet everyone is obsessed with stocks.
  • From an EWT perspective is is likely that we have a couple of 1-2 moves in the frame rather than a single rally phase.  This is important as the retrace would be deeper if this were 1 rally phase up.  This also suggests that Gold is similar.  Looking at the Daily chart you can see a near perfect A-B-C form for the 1-2 (blue) and a near perfect 1-5 (brown) up to the potential wave 1 (green) top and turn.  There was a clear 1-5 up to the wave 1 (blue) also (not shown but check previous posts if interested).  This means that so far the move is motive (1-5 is in the long term trend direction = motive; A-B-Cs are counter trend moves).
  • Unlike Gold we have a possible NMD at the top last week and similar on both RSI and Stochastic.  Not conclusive alone but taken together with everything else it fits a pattern.
  • Because the wave 2 (blue) dropped all the way to the Fib 76/78% the different between the Fib placement here and at the larger wave 2 (Purple) is minimal, again unlike Gold, which was more buoyant on the wave 2 (blue) and therefore less conclusive.  So drawing the Fib retracement indicator from blue 2 is a decent shout.
  • If the spike down and retrace rally is an A-B (brown), which it is large enough to be, then I would be targeting the Fib 50% for the wave 2 (green) retrace turn initially (circa 1600).  However if we get a strong move and Gold goes all the way to, say, 1360 (its neckline support zone) then 1500 (Fib 76/78% again) could easily be on the cards here.  Nice little swing trade if you can take it, but watch out for sudden reversals!
  •  Finally, on the 1H chart you can see the current top, spike down and relief rally.  Just as with Gold this move broke out of a short term expanding channel initially and retraced back up to the Fib 88%.  Unlike Gold, Silver gave us a nice channel encompassing the relief rally and we saw a breakout and failed retest of the breakout zone before price dropped away.  Both the green 1 and brown B/2 were on NMD on the 1H.

Alas price did not hammer down at the end of the week, which would have been ideal, but did nudge down in the final few hours of trading, which can be indicative at key turning points.  Stocks hit a consolidation phase at the end of the week too so early next week I would need to see stock resume a strong rally, possible after a brief bearish move, possible not (could even see a gap up open on Sunday).  If we get this then Gold/Silver could see a mirror image fast drop and it will be crucial to see a lower low to reverse the medium term up trend.  Once this happens the retrace is on and it remains only to target the turn back up.

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"....more broadly we have seen currency wars but these have not really captured the imagination of the MSM yet"

Actually I'd argue we have had currency wars for some years already. History shows it goes in the following order:

Currency war, Trade war, War. (Regrettably). 

If I recall correctly the market falls of early 2015 (about 20% down) were blamed on Yuan being devalued by Chinese manipulation. Way before Trump!

"....we suddenly get a super massive set of central bank policies that drop rates to zero"

Again I'd say that has been going on for some years. Arguably you could say about 35 years since the Plaza Accord.

Once fiat became unaccountable (no gold standard) the politicians proceeded to spend, spend spend =debt,debt,debt. Expect MMT  (US Democrats pushing modern monetary theory) to allow them to continue in that vein. Again history says these currencies will all eventually disappear, like species, approx 95% no longer exist. 

Broadly I agree with what you say. The present financial system is critically sick that's for sure. It has propped up assets with huge doses of QE and zero rate interest policy (expect more of that when the ECB meets next month). You are correct about the size of stock markets. If the global market was a horse the bond market would be three legs of it! I digress....

However, if you are faced with massive debts then here are your options:

1) Default - Argentinian/Zimbabwe style. Not likely, at least until all other options tried - as that's the end game.

2) Grow the economy at a fast enough rate to meet and exceed future repayment obligations. In a global low anaemic growth environment? Unlikely.

3) Inflate like mad. It's the only viable option.

You could, reasonably say, that after 3 massive QE sessions and ZIRP and now  NIRP that deflation is winning. Arguably it's all been a waste of time / money. Where's the kitchen sink? Presumably more of the same and then some helicopter money? It seems to me that this is more in line with Japan (targeted 10yr bond rate = 0%) which someone said in the 90s was  "...the dress rehearsal. The rest of the world will be the main event". Trying to get inflation without destroying the USD global reserve status is unlikely in my opinion and you can't help but feel that some sort of Bretton Woods global RESET will eventually emerge. It's certainly what Russia, China, Syria, Iran, Turkey etc are angling for.....and their central banks have been big buyers of bullion recently.

That's why I'd recommend holding gold. Not as a trading strategy (which is what I appreciate this forum is).

Nice sharing these thoughts with you>

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Nice reasoning and logic to that @ChrisN, I have no argument with any of what you suggest and agree the options.

I do wonder though if scenario 3 is likely to actually become manifest.  That is clearly what the powers that be are trying to get to.  Scenario 2 is impossible in a world where populations are slowly decreasing as birth rates tip over and begin to drop (maybe there is hope for the planet after all!) although either of the Malthusian economic constraints may yet come into play so a catastrophic collapse is still very much possible, be it via an actual war as in your extrapolation (hope not) or "just" a financial meltdown.  Given the choice I'd rather the latter financial Armageddon rather then the physical kind... 

If Japan is the dress rehearsal that does not bode well as nothing Japan tried got them out of the stagnation they have been in for decades.  I think that they have been saved from a total meltdown only because the rest of the world, their customers, did not follow suit (yet!).  What happens when they do?  Surely Japan then does meltdown?

So net I think all the efforts of all the central banks and their political masters has not achieved the desired effect.  Eventually the other shoe drops and so I think scenario 1 or a version of it is the inevitable, logical conclusion.  I don't think it will be a default like Argentina/Zimbabwe because they were isolated cases.  I think it is much more likely that governments effectively nationalise the economy by effecting bail ins (a la Cyprus); currency access restrictions (a la Greece and Cyprus); and debt write offs (i.e. debt holders take a massive hair cut).  In fact under these circumstances bond holders and cash holders will all get hit.  The only area that then works is the aged old store of value, precious metals (and land I guess but I suspect that land owners will be at the beck and call of the government as well to ensure food production).  Note this has happened before.  In the US during the Great Depression the US government actually went to the extreme of making it illegal to privately own gold, it only became legal again in the 1970s.  That is one reason that holding gold overseas is something that US investors actively seek.  Holding some actual physical gold, or better yet silver as it is more usable in a crisis, is clearly a way to go under such a scenario.

Hopefully the extreme scenarios do not come to pass but I feel that some version of this is required to reset the system and prepare for the next evolution, which will be all about technology.  In any scenario I see Gold/Silver as being the asset of choice.  Holding paper versions may not be so smart in the worst cases.  Forget about bitcoin and their ilk, they will get wiped out and will not realise their true potential until the next evolution.  They will still be controlled by governments, unless anyone thinks there will be no governments...  Talk about science fiction!

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On 18/08/2019 at 11:02, Mercury said:

If Japan is the dress rehearsal that does not bode well as nothing Japan tried got them out of the stagnation they have been in for decades.  I think that they have been saved from a total meltdown only because the rest of the world, their customers, did not follow suit (yet!).  What happens when they do?  Surely Japan then does meltdown?

Meltdown? Some context required. End of 1989 Nikkei stood about 39000. Within 9 months that had halved. Over the next 22 years it halved again. At the low, financial district property worth 1% (one percent!), residential 10% of peak prices. However you look at it I reckon that was a meltdown!

Still if you blow a bubble .....it will pop in your eye. They entered a deflationary period 20+ years ahead of the rest. The consequences are daunting. Poor demographics often quoted but not 30 years ago it wasn't. Overall I'm sure the Plaza Accord and the subsequent currency adjustments had a big impact. Resets......reset everything.

The Brexit/EU nonsense rolls on but I'm disappointed that the UK media have not picked up on the impending next European banking crisis. The EuroStoxx Banking Index is on a precipice. Levels last seen in late 80s, during the GFC and the last Greek/Cyprus debacle  the outcome of which was the current "bail in" process you mentioned. Italy is seriously trying to issue min BOTs (because it can't afford to repay in Euros) to meet its future obligations. that's the third biggest economy in EU. France now well above accepted deficit levels and Germany probably in a recession. Show me the door.......

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On 17/08/2019 at 17:04, ChrisN said:

Expect MMT  (US Democrats pushing modern monetary theory) to allow them to continue in that vein

 

I thought that the 'modern' monetary policy was introduced by Reagan, with massive government spending (on military and corporate subsidies/tax breaks) and easy money for Wall Street.  Coincidentally a lot of the supporters of Reaganomics are ex-Trotskyites and radicals.  Maybe they know how destructive all of this really is and are still plotting the downfall of capitalism?  The 'deep state'?

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That is true @ChrisN, although when I was in Japan a while ago I saw clearly well educated older people working government created jobs and stayed in a place run by a lady who was clearly working hard to make ends meet but nevertheless the standard of living generally in Japan was high relatively speaking.  Their companies continued to do ok because their customer base was still sound.  I guess my point is how much worse would it be when their customer base erodes heavily due to a global shock?

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8 minutes ago, dmedin said:

I thought that the 'modern' monetary policy was introduced by Reagan

My understanding (simplistic view) runs like this.....

If we expanded the Fed balance sheet from $800 billion  to 4.3 trillion (with phoney money) and didn't get any inflation then whose worried about deficits? Spend, spend, spend. $1 trillion next year. That's what I meant ...a socialist's (Democrat) dream! As I said...it doesn't matter........until it does!

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1 hour ago, Mercury said:

That is true @ChrisN, although when I was in Japan a while ago I saw clearly well educated older people working government created jobs and stayed in a place run by a lady who was clearly working hard to make ends meet but nevertheless the standard of living generally in Japan was high relatively speaking.  Their companies continued to do ok because their customer base was still sound.  I guess my point is how much worse would it be when their customer base erodes heavily due to a global shock?

Thanks @Mercury for the personal experience. For a country of about 125 million and only recently relegated to 3rd largest economy it is indeed amazing that they have continued to enjoy such a high standard of living. Stoicism I guess....and one where you have to work well into western standard retirement age. Consequences of all that debt 30 years ago? or a dwindling youth (with no active immigration policy)? Probably both....plus massive, massive central bank intervention. I still believe they are the canary in the mine. If you're not yet retired....you probably never will! (Tongue -in-cheek).

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37 minutes ago, ChrisN said:

My understanding (simplistic view) runs like this.....

If we expanded the Fed balance sheet from $800 billion  to 4.3 trillion (with phoney money) and didn't get any inflation then whose worried about deficits? Spend, spend, spend. $1 trillion next year. That's what I meant ...a socialist's (Democrat) dream! As I said...it doesn't matter........until it does!

 

'Spend spend spend' - isn't that what the U.S. is already doing?  Except that it all goes on the military and Wall Street.  Why is it only inflationary if it gets spent on social policies?  (Asking because I'm curious.)

Opponents of government spending always ask where the money comes from, but we all know that money gets created out of nothing every day by central banks and forex trading institutions.  It only becomes a problem when any significant amount of that money gets translated into higher wages.  Very interesting.

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4 minutes ago, dmedin said:

Why is it only inflationary if it gets spent on social policies? 

Ah! The $64 million (billion, trillion) question! Where's the inflation? I'm afraid I can only offer my own thoughts on that....there are far better qualified people to be had elsewhere. Here are my personal thoughts/threads however.. QE was used (expanded the Fed balance sheet) to purchase US Treasury debt. Elsewhere same reason. It was intended that it would be rolled over as it matured and sold back to the market. Now there's doubt about that or at least some of it. It could just disappear. You're effectively buying your own debt...nice game, nice game....and if you can do that (with one hand on the money press) then you want it as cheaply as possible. If you're effectively the only buyer, you own the market and that itself drives yields lower. Wash,rinse,spin. Throw in some safe haven moments and you get to where we are today. Throughout the whole of the experiment, and that's what it is because no-one knows how this ends (although I expect badly) it became clear that the elites are getting richer...they were the ones with the assets after all. For assets include everything...stocks, property, antiques, paintings, wine etc. Everything Trump has in other words!. Their pay (board level) also got a huge boost in my opinion from performance related share prices due to unprecedented share buy backs - this is on going because credit has never been so cheap. Your pay almost certainly didn't increase. In fact in real terms it went backwards. Lots of studies support that thesis both in US/UK/Europe. The policy is now driving rates well below zero. Just when you thought rates can only go up from here (2016 low) they actually went lower and bonds were and still are the place to be! Wish I had bought Reagan's long term debt. I think this will continue and it links in with my thoughts about Japan the past two decades. Keeping rates below inflation (and they all do) effectively forces you to do your consumer bit and that was the justification/hope/smoke screen, take your pick!. We'll grow our way out of it - scenario 2 a few posts back. The wealth divide is a real concern now and they know it. In consumer led economies, if the consumer had access to that increased money supply and provides it with some velocity (i.e. gets it moving around the economy) THEN you get inflation. You don't have access to it.........yet. Assets are being held up by funny money. Any whiff the central banks (i.e who now ARE the market) will dial back causes immediate stock market roll overs. Draw your own conclusions.

The other thought is simply this. Think of deflation as air leaving your tyre. You're pumping like mad to get it back in but however hard you try the tyre is getting flatter! The hole's too big. Deflation wins.....or if you manage to stabilise the pressure then stagnant growth at best. Possibly stagflation 70s style. Get the plaster on and whey, hey! Hyperinflation here we come. Hold gold.

Just my penny worth!...and apologies for the length.

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Or maybe not @TheGuru12, On Silver price is knocking on the door of a breakout of a daily channel, could yet bounce of this but why wait until it has resolved before posting?  I am bearish biased as I expect to see a retrace before a big Gold move and the situation does not seem to be set for that yet from a fundamentals perspective.  We either need a meltdown or massive CB stimulus and FX wars.

Technicals are the same as before but added to this is a 1H chart 1-2 retrace to the Fib 62% on NMD.  Similar, perhaos even better, set up on Gold.

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Gold and Silver looked to be running away with themselves in a bullish surge yesterday but as stocks picked up momentum the other way and the USD also did the same the precious metals suddenly got an attach of the jitters and couldn't manage a breakout.  This seems important to me and if next week does reveal a stocks rally perhaps we have seen Gold/Silver top out for now with another failed assault on key resistance.  Late price action was bearish on Friday.

Remains to be seen and of course no once can rule out a breakout next week, which would be a Long trading event in my opinion but I am minded to expect a pull back from these levels and a significant retrace to prime the pump for a later surge and breakout.  On Gold the obvious retrace end would be a failed test of the long term neckline (circa 1360), a recognised important level in the past by professional traders and money managers.

So what I am looking for and trading next week is as follows:

  1. Continued USD bearishness, probably after a bit of a relief rally but I wouldn't expect much - I am long currency pairs against the USD
  2. Stock indices bullishness to complete a wave B and turn into a strong wave C but watch that whip saw price action medium term
  3. Gold and Silver to go bearish for a time

Let's see, could be an exciting and profitable week/month if my USD turn has finally arrived.

Have a great long weekend those of you who are on it.

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On ‎11‎/‎08‎/‎2019 at 15:44, elle said:

Gold chart - I trust you can see what's happened - for this to continue it must hold above the last break out imo

Capture gold.PNG

 

Capture gold.PNG

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On 24/08/2019 at 15:12, Mercury said:

watch that whip saw price action

Better still, don't trade the indices at all.

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That is a reasonable strategy right now @dmedin but if it is right for stocks indices then generally it is also right for individual stocks...  The uncertainty that abounds right now should at least warrant caution, in all assets frankly.  Until things resolve more generally there are no one way bets.

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On 25/10/2018 at 02:50, Mercury said:

Gold rally phase looks strong, although it has been in consolidation during the recent stocks bear moves, not dissimilar to USD.  Makes me think Gold is not yet acting as a safe haven store of value yet.  I suspect the next move will come thanks to USD price action rather than stocks but regardless of why I still see a strong Bullish set up, albeit short term there may be more consolidation.  Having had a breakout and retest of a potential small scale flag formation (these are relatively weak signals being on short term time horizons) I am looking for a stronger break through of overhead resistance levels to trigger any additions to my Long positions.  Caution is required during any consolidation period as whiplash price action can cause death by 1000 cuts.  However there is good potential here if we can tap it.  The Daily chart medium term prognosis is speculative at this point and therefore only a road map guide but a strong breakout would get this market on the road and then constant revaluation will help manage any trades in play.  Silver set up seems even more Bullish to me.

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Not that I am an expert on Gold @dmedin, I am not, but I have been calling this rally since before the above post.  This was when to go Long.  Now there is a tricky choice between buy the dips and wait for a significant pull back (this is more than a dip).  I am in the latter camp.

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3 minutes ago, Mercury said:

Not that I am an expert on Gold @dmedin, I am not, but I have been calling this rally since before the above post.  This was when to go Long.  Now there is a tricky choice between buy the dips and wait for a significant pull back (this is more than a dip).  I am in the latter camp.

 

I wasn't aiming that you @Mercury :)

 

Edited by dmedin

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Didn't feel you were @dmedin, just pointing out that these calls are often all there in the threads, just maybe requires a bit of work to get into the back threads.  

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On the subject of 'missing the boat' big time ... if that's not a third wave then I'm a monkey's uncle.  🙈

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Edited by dmedin

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Buy and hold the huge bull breakout in July ... I see no other winning strategy.

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You might be a monkey's uncle @dmedin, or at least it depends whether you are saying the move since 30 May is a wave 3 in and of itself or just the first leg (wave 1) or a larger wave 3 (BTW, I think you meant to say the strategy was to buy and hold the June breakout right?).

Personally I see it as a wave 1 of wave 3 so we should see a wave 2 retrace before things really get going and that retrace bearish move will surprise and knock the confidence of the bulls, probably stopping them out of positions they had locked in as big winners.  This is how sentiment changes and big moves are set up.  FWIW, COT data is the most bullish since before 2007 (I don't have prior data so it might be the most bullish ever, it is more bullish than at any time during the massive rally up to 2011!).  I think that is too bullish to be sustained at this juncture.  

As it happens buying the triangle breakout on May 30 was right and holding there will probably be alright, unless the alternate deflationary Bear scenario holds true.  Some people view the current move as a wave B that sets up a further drop as deflation hits across the board.  Personally I don't buy that one, not yet at least, although I can see it on the technicals.  Personally I see Gold and Silver as a safe haven store of value when things start to get really ugly, its just that we are not there yet so I can't see a justification for this particular bullish move being the "big one".  If stocks and bonds crater in the coming weeks then gold and silver are likely to rally hard.  Does anyone who is buying into precious metals rip see the corresponding collapse elsewhere?  Some people do thing the ATHs on US large caps as the top but even then it takes time for a collapse to happen.  Perhaps rumours of the demise of the aged bulls are exaggerated, at this moment at least.

And this is all the more relevant if you look at the price charts.  Last week produced the first real bearish candle since that May 30 breakout.  This occurred at a zone of considerable long term resistance, although the wave B proponents see 1590-1600 as the target level, this would be the Fib 62% off the 2011 ATH.  Additionally, on the Daily chart, there is a potential pennant off the Triangle low prior to the May 30 breakout, which hit 2X the pennant mid point (1555) at this weeks high.  And at the end of last week Gold poked through a potential ending Triangle and stayed below.  If this breakout holds early next week then we could have seen that wave 1 of 3 turn I was referring to.

The pre May 30 Triangle retrace is a bit of a problem for me.  If it is a 1-2 then the subsequent rally is a wave 3 and the next move will be a 4 and then a 5 and then a larger 1-2.  That's all a bit complicated, although it might fit well with the whip saw price action we are seeing on stocks.  If the Triangle is not a 1-2, but just forms part of the whole single rally wave from July 2018 (ah! is that the July you meant? @dmedin) then the next bearish move would be a 1-2 retrace that would most likely test the H&S neckline and Fib 50% at 1350 (confluence of both these thing is like a magnet for price in my opinion).  There is pretty solid NMD on the Daily chart at last weeks top.

Summary:

  1. I think we have seen an end to the current rally but we may see a small retrace down now and another leg up for a slightly later "real" top out
  2. Either way we should see a strong retrace (now or after another leg up) to retest the 1350 support zone before the mega rally gets going in conjunction with other market disruption moves
  3. There is an outside chance that precious metals are only in a retrace and that a further bearish lower low than 2015 is slated but I don't give this one a high probability at present.

XAUUSD-Weekly_010919.thumb.png.5d5cbb2f3ce800d39142b52f8f4b46c9.pngXAUUSD-Daily_010919.thumb.png.35cd9c6d0455f88489a415a35faab2cb.pngXAUUSD-1-hour_010919.thumb.png.c78fb1437d695aeab0ca4bc7e0e81868.png

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Silver should also be considers in assessing what is happening with Gold right now.  These markets are in a similar pattern but Silver dropped lower to the 2015 lows and has been more reluctant to breakout in the recent rally.  I think the technicals on Silver are more straight forward than on Gold, cleaner, easier to read, and that is one reason I prefer it as both an analytical and trading vehicle.

The big picture is very similar to Gold, except that Silver retraced all the way to the Fib76/78% zone in 2015 where as Gold only made it to the Fib 50%.  This alone is one reason I don't buy the wave B scenario on Gold.  On the daily chart I have a decent channel that provided the resistance for the top out last week (if it was a top and doesn't require another touch...).  The NMD is there on the daily but marginal, it is clearer on the 1H chart.  I like the 1-2 labeling for the Triangle (similar to Golds Triangle that I am more equivocal about - see previous post) and therefore a marginal NMD at an intermediate wave 1 if fine.  Still we could see a fairly strong retrace here.

On the 1H chart there are several potential ending channels within the wider daily channel.  The first has been broken and the second survived a test on Friday but if this is broken early next week then a test of the lower daily channel line is on the cards, and this would result in a clear break of the equivalent channel on Gold.  There is an unclosed gap in Silver around about the lower channel line test point - I expect the gap to be closed and the channel to be broken.  If this all plays out then it just remains to be seen how far the retrace will carry. 

XAGUSD-Daily_010919.thumb.png.461d644f48b2fdf26e8997e56ab86e43.pngXAGUSD-1-hour_010919.thumb.png.3c25842350b04defae9b8de801ddb122.png

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Possible turn in Gold and Silver in the making.  Gold has hit a lower channel line off NMD at the turn.  Looks like a clean wave 1 or a larger rally to come but, if the break is confirmed, we should see that retrace I have been talking about.  For swing traders this is about Shorting the move, but watch out for the wave B.  For trend followers you might want to check your stops and prepare to buy the eventual dip.

There was a Pennant that marked almost exactly the half way point on this wave and gave be a great hint at the potential top where we got it (if confirmed).  I am targeting a large retrace, maybe back to the original neckline breakout at circa (1350).  However we may only see a consolidation phase, in which case buying the breakout Long on that would be the play.

XAUUSD-Daily_050919.thumb.png.dc44152364a7704eb4f17326cac54749.png

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Similar set up on Silver, no surprise there.  We had a small overshoot on the upper daily channel line and sharp turn back today, very bearish candle so far (day is not yet over of course).  Decent 1-5 EWT count but no NMD this time, not unusual with sharp rallies in Silver as it happens.  There is NMD on the 1H chart though and now price is approach a short term lower channel line with the daily channel line still some way below.  I would be looking for a retrace of similar proportions to Gold at this point with an initial target of the Fib 50% coinciding with the parallel channel lower line, subject to price action as Silver can run harder than Gold.

XAGUSD-Daily_050919.thumb.png.2a0f4104151ddccbe4c5523e91087e8f.pngXAGUSD-1-hour_050919.thumb.png.d2b5ba0b3d262f6de7535a37decf4c3e.png

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