Gold & Silver in a LT rally

[Mercury]

Gold staged a break of that short term support zone but has since been stopped at another short term support level.  I am looking for a break of this secondary support to open the way for a strong bearish phase.  Risk to this might be a bearish phase on stocks as these markets do seem quite correlated in an inverted fashion, however there is no reason why gold and silver can't beak down while stocks also go bearish for a time so I am not getting hung up in stocks in relation to gold.

[dmedin]

Long gold today, my bonnie bairns 😺

[Caseynotes]

18 minutes ago, dmedin said:

Long gold today, my bonnie bairns 😺

Keep an eye on the indices, gold tracking up as indices track down but the indices bulls are trying to turn it around here, no word on Chinese retaliation as yet to the US move earlier.

[Mercury]

Day trading gold, hmm...

I agree with @Caseynotes that Gold remains in an inverted correlation with stocks.  I think the Gold bugs have overdone it today, less so Silver, which may be relevant.  I am expecting a stocks rally, maybe on US opening, and it looks like bad news (in the form of the PPI data) is still good news for stocks...  The only justification for this is that the Fed put is still being played out by the permabulls.  Of course it could be, as some suggest, that the turn has happened and we get sustained bearishness on stocks and it could be that the Gold/Silver retrace is over and was shallow but that is not yet clear.  Currently Gold is stopped at the Fib 62% retrace level, although we could see another small leg up before this is over.  My assessment is that the NMD at the 2 Oct turn is still in play but we do need to see a turn and bearish move (quite a fast one) soon for this to remain the case and that suggests a stocks rally at or soon after the US open.  Let's see...

[Mercury]

Gold and Silver are very much still following my bearish road map after a bullish resurgence in stocks today.  The retrace on both carried to the Fib 62% before plumeting today it a fashion that is suggesting of a wave C (or possible 3 but that would be a much more long term bearish scenario, we aren't there yet).  The short term rally of PMD looks to be over with today's price action.

I am Short of the wave 2 (light blue) turn.  My targets of 1360 and 1500 for Gold and Silver respectively remain.

[Mercury]

Gold and Silver have certainly been exhibiting whipsaw price action since the turn back down, which could be symptomatic of a complex retrace, as previously posted OR could be symptomatic of a consolidation.  At the outset I noted 2 scenario possibilities as being either a retrace or a consolidation prior to continuation of this rally phase.  I favoured the former but both remain possibilities.  The fact that Silver has retraced to near its Fib 50% while Gold remains above its Fib 23% could suggest a consolidation is the right way to look at it.  In addition the key drivers for Gold and Silver, in terms of them being a store of value in times of uncertainty, are clear enough within the macro economic picture including: Recession looming (data just keeps getting worse); likelihood increasing that the Fed reopens its dovish policy; political upheaval (EU/Brexit; USD/China trade wars; Trump vs everyone; Trump impeachment and what happens if Warren gets in..? and so on).  Add to that the likelihood of a sustained period of USD weakness and the clamour for dislodging the USD as the reserve currency and Crypto movement against Fiat currency and the likelihood of the central banks getting what they are looking for (i.e. inflation) but not being able to control it (i.e. hyper inflation) and to cap it all Gold is advancing in all currencies and beating S&P500 returns.  Phew!

So the macro case for Gold (and also therefore Silver) is really as strong as it has even been.  However for Gold to really go on a tear a hyper inflationary recession is what is indicated rather than the much feared deflationary recession.  In fact those calling for a deflationary recession are also suggesting Gold will fall below the 2015/16 turning point.  I can see that technical scenario but I do not believe it is likely.

So taking all that, and the fact than Gold has broken through the critical 1350/60 level, there is a strong case for a consolidation scenario rather than a retrace back to that 1360 level.  Still it is a classic of Chartist lore that a H&S neckline (Gold not Silver) is retested before a rally really gets going.  However I might have expected that to have happened sooner and after a shorter rally phase.  There is a technical scenario that seems like a better fit now to me as follows (using Silver as a better illustration but the same is true of Gold):

• Double bottom on the weekly chart (H&S for Gold) with a breakout of the Triangle consolidation phase (neckline for Gold) - no change there
• Small 1-2 (green) retrace after the larger 1-2 (Pink) within the Triangle.  The current retrace (or consolidation), which hit just short of the Fib 50%; actually right on the Fib 50% if you draw from 2 (green) - see my daily chart - which is very relevant to the analytical solution as this would suggest that this may well be a Pennant on the rally up from 2 (green) to a wave 1 (blue).  Hold this thought!
• If the current retrace is a Pennant that has completed then the wave 1 should conclude within the next major resistance zone (circa 2200) although Silver is very spiky so so a higher terminator is quite likely, especially if the Pennant extension marks a wave 3 (green) rather than a wave 1 blue.  Price action will tell us as the move progresses so don't need to worry about it just yet.  The key point here is the identification of the current retrace as a Pennant consolidation and not a 1-2 retrace as this negates another large leg lower and in fact a rally.
• If this is a Pennant then looking at the daily chart you will see that it has already broken out, put in a small 1-2 retrace on the Pennant line and rallied away hard.  Price got knocked back a bit towards the end of Friday as stocks rallied towards new ATHs (US large caps) but has not yet achieved this (S&P500 is currently sitting on a double top).  Also USD was in a retrace rally but I anticipate this reverts to a bearish stance soon, the drivers of which would be supportive of a Gold/Silver rally.
• There is PMD at the Fib 50% turning point, which is also a clean A-B-C.
• I note that the Pennant on Silver is curiously similar to that on Bitcoin...  Coincidence?  Those that call Bitcoin as a store of value asset would say no...

All it will take on a Macro level for Silver/Gold to rally hard up through the resistance zones to a new higher high is a bit of negativity about the economy, the Fed policy, the trade wars, the global political unrest, key US company earnings misses or just a bit of negative news (Boeing, Johnson & Johnson, Deutsche Bank, GE?) no shortage of candidates.  Still watch out for a large scale A-B-C (green) as per my original thesis.  For the record I am Long Gold and Silver off the Pennant breakout (Flag in the case of Gold).

[Mercury]

The only trade that looks remotely interesting to me today, ahead of the FOMC that is, is Gold and Silver.  Price action has been a bit whipsawish lately, leaving room for both the consolidation and deeper retrace scenarios and as yet neither of these are resolved.  Perhaps the FOMC and subsequent critical data releases could resolve this.

The Pennant on Silver remains in play but an equivalent Flag on Gold is not.  Again there is a lack of clarity in the big picture.  However in the short term price action has shot up and quickly reversed back down only to be stopped again and may now be in the process of reversing Long again.

Looking at Gold charts this time I see the following:

• On the 1H chart you can see that spiky price action I referred to above and all of the bearish price action can be contained with a Triangle formation, which was turned with PMD and has now broken out with a small 1-2 retrace to set up a stronger rally (currently in play).
• A higher high than the 1 (grey) was posted just now but overhead resistance levels need to be be broken convincingly for this to be seen as sustained.
• Zooming out a bit to the 4H chart (Daily is unchanged since my last post in terms of set up), and if this is a deeper retrace move rather than a consolidation, they a complex retrace is in play.  I have marked up a series of A-B-C waves that could culminate in a wave B (green) that would precipitate the final fast wave C of the deeper retrace.
• I would expect at least a retest of the Fib 76/78% resistance zone where the wave B (brown) failed (circa 1535) or a little higher (not withstanding FOMC spike).  If this doesn't hold then the odds are for a breakout of the previous highs at 1555ish, which would prove the consolidation scenario and then strap in for a long and fast bull run.  I am not really sure we have the necessary fundamentals picture for this yet so favour the deeper retrace but it is a 50/50 really.
• Of course the consolidation could just run on longer and past the FOMC release.
• Silver 1H chart also showing a very similar pattern to Gold.

 

[CharlotteIG]

On 30/10/2019 at 11:34, Mercury said:

The only trade that looks remotely interesting to me today, ahead of the FOMC that is, is Gold and Silver.  Price action has been a bit whipsawish lately, leaving room for both the consolidation and deeper retrace scenarios and as yet neither of these are resolved.  Perhaps the FOMC and subsequent critical data releases could resolve this.

The Pennant on Silver remains in play but an equivalent Flag on Gold is not.  Again there is a lack of clarity in the big picture.  However in the short term price action has shot up and quickly reversed back down only to be stopped again and may now be in the process of reversing Long again.

Looking at Gold charts this time I see the following:

• On the 1H chart you can see that spiky price action I referred to above and all of the bearish price action can be contained with a Triangle formation, which was turned with PMD and has now broken out with a small 1-2 retrace to set up a stronger rally (currently in play).
• A higher high than the 1 (grey) was posted just now but overhead resistance levels need to be be broken convincingly for this to be seen as sustained.
• Zooming out a bit to the 4H chart (Daily is unchanged since my last post in terms of set up), and if this is a deeper retrace move rather than a consolidation, they a complex retrace is in play.  I have marked up a series of A-B-C waves that could culminate in a wave B (green) that would precipitate the final fast wave C of the deeper retrace.
• I would expect at least a retest of the Fib 76/78% resistance zone where the wave B (brown) failed (circa 1535) or a little higher (not withstanding FOMC spike).  If this doesn't hold then the odds are for a breakout of the previous highs at 1555ish, which would prove the consolidation scenario and then strap in for a long and fast bull run.  I am not really sure we have the necessary fundamentals picture for this yet so favour the deeper retrace but it is a 50/50 really.
• Of course the consolidation could just run on longer and past the FOMC release.
• Silver 1H chart also showing a very similar pattern to Gold.

 

We can see Gold was down last night around 18:30pm GMT but is back up to a high for the week. 

What does everyone think is next for Gold?

[dmedin]

If it breaks out over 1520 then I like it big and long! 😺

 

[Mercury]

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 better opportunities for me right now, I am happy to sit this out until the fog clears.

 

[Mercury]

That's weird.  I thought I had posted an updated on this thread...  Losing my mind maybe...

Anyway yesterday's bearish move on both Gold and Silver helped me spot something I should have spotted earlier, which is a possible consolidation Triangle formation.  The key to such a pattern is to trade the breakout (watch out for fakeouts though).  The set up that is most favourable at present is for a breakout to the down side to continue the retrace to test the H&S neckline (circa 1360).  The Triangle itself has 5 hits and conventional EWT has it that the fifth sparks a move in the direction of the turn (in this case down).  Currently we have seen a hit of the bottom line and a small rally but this could be a smaller consolidation within a bearish fast move down.  Ideally want to see further USD strength to support this directional move.  Alternatively we could see another round trip within the consolidation pattern.

[dmedin]

I thought the balance of probability is in favour of the prior trend when it comes to consolidation patterns?

[Mercury]

Looks like a consolidation pattern breakout to the down side to me.  If all goes according to plan the next stop is 1360ish on gold, maybe 1500 on Silver.  Will likely get some form of half way mini consolidation along the way.  Looks like this move is getting some sentiment backing from stocks goosing and USD strength, perfect!

 

[Mercury]

Just saw your post @dmedin.  I would tend to agree although conventional chartist wisdom simply has it that you trade the breakout whichever way it goes.  The hard part is recognising and avoiding or fading a fakeout.

The principle you are referring to is partly in play here as the consolidation pattern I drew was part of the counter trend move so in fact the breakout was in line with the current trend (i.e. a counter trend move).  There are some people who see this as a trend change rather than a counter trend move that will see gold/silver below their 2015/16 lows, so who knows on that score.  For the principle of buy the dips/buy the consolidation breakouts on a bull rally in Gold/Silver to hold true I think we would need to see a turn around the levels I have indicated and fast rally past the recent highs.  Then and only then will we truly be in a long term bull market for precious metals.

However, from a fundamentals perspective, I really believe we need to see a breakdown in the stocks bull plus inflation fears and chaotic interest rates environment, the latter of which could come about with the Fed dropping to zero or below and the bond market cracking (i.e. increasing bond yield curves).

I might also expect USD to go into a massive rally in a flight to safety.

Plenty of signals to watch for... 

[Mercury]

Silver has just made a lower low (not closed until the end of the day of course) but no matter as the support has been broken.  Gold must surely follow?  If confirmed this is a strong indication that the retrace rather than consolidation scenario is correct and we can expect further declines in gold/silver prices.  As I write Gold is hovering just above its support level in a downward trajectory.

[Mercury]

And there goes Gold.  Strong price action confirms the trend.  Possible retest of the support.now resistance to watch out for but otherwise the only thing to watch for prior to hitting the end points is a consolidation phase.

[Mercury]

I am focused on Gold and Silver at the moment, in terms of trading, for a number of reasons: the best and fastest moves are coming on these markets, therefore the best risk reward return; the charts have cleared up with last weeks decisive move, which signaled the more bearish scenario is in play, whereas other markets are still in flux for me; the resolution to Gold/Silver will be highly instructive for where other markets are going and for the wider economic outlook (more correctly sentiment in relation to the outlook).

Last weeks price action was both very bearish and decisive in that it all but eliminated a simple consolidation pattern (i.e. a continuation of the much spoken about bull) with the break to new lows, especially on Silver (there is always a chance that the market reverses here to spite me...).  With USD strengthening and stocks also continuing to grind slowly, slowly, up, the euphoria of Gold heading to the moon seems to be waning.  This is very good news for me both because I was projecting a bearish retrace but also because of the simple fact that markets almost never head to the moon when everyone says they will.  Why?  Because if everyone truly believed Gold would hit $5000+ we would already be there or well on the way...  Instead we got profit taking at 1556, a few point off where I had projected a turn.

So is it down, down, down from here?  Probably a bit more complicated than that but at this stage I stand by my projection for a retest of the H&S neckline.  There are 2 possible ways to draw the neckline however (see the Monthly and Weekly charts below).  The weekly chart neckline projects a turn into a long term rally at the Fib 50% (1360), which also has the advantage of a curious EWT guideline that a wave C can project 1.618 time of a wave A (also 1:1 and 0.618).  This is based on  the golden ratio, a mathematical phenomenon that occurs widely in nature.  This isn't a guideline I place much store in myself but it is intriguing that it should coincide with the Fib 50%.  The monthly chart neckline projection is for a turn at the Fib 62%, which is the most common retrace level.  So that leaves me with a target of between 1300 - 1360 for the end of the retrace on Gold.  Note from my charts however that I do not expect it to be a massive fast drop from here.  If we got that I would be considering an alternative scenario that the market will penetrate all the support zones and produce a lower low beyond the 1050 lows from 2015/16 (a credible but as yet not compelling scenario for me).  Where the forthcoming flag consolidation occurs could shed some light on how far the bearish move will go and my lines are indicative only.

We could see a further reasonably fast drop down to maybe the Fib 38% (1400) before that Flag consolidation.  This might offer some short term Short opportunities and/or profit taking on Shorts taken at the current breakout level (1457).  The flag breakout (I expect this to be to the downside of course) would also offer a Short trading opportunity when it materialises and breaks down and a retest of the 1457 after a further drop could also present as a decent Short opportunity.  I will be mindful that retrace moves can be a bit unpredictable and subject to fast reversals so trading with caution is indicated.

Note also that on Gold the rally up to where I have denoted wave 1 (blue) is in a credible 1-5 form, albeit that the Pennant is very low down.  This is not the case for Silver, which is even more interesting but I will need to open another post I think.

 

[Mercury]

So on to Silver.  Here we do not have a H&S formation but a possible double bottom, that has been my working hypothesis so far.  This market dropped much further than Gold did from the 2011 highs (to the Fib 76/78% zone), which is one reason I don't buy a drop to lower lows than the 2015/16 turn.  Silver broke out of a resistance trend line (weekly chart - grey line) around the same time as Gold broke out of its neckline.  However the rally is in an awkward form and looks more like an A-B-C to me that the 1-5 I might have expected.  So I relabeled from a 1-2 to a 1orA - 2orB (blue on my weekly chart).  This is very important from an EWT perspective because the whole move up has been contained by an important resistance trend line (see monthly chart).

If this line (purple on my weekly chart) is a valid upper Triangle line and the lower line is drawn off the double bottoms, which results in a slightly up sloping line, then a possible EWT labeling would be an A-E Triangle consolidation (red labels on the weekly chart).  If this holds true then a further retest of the lower line is likely, which may coincide with the weekly trend line (grey) as well.  The fact that Silver has been behaving far more bearishly than Gold would then make sense.  Gold has broken out (rally has begun) but will most likely retest its neckline before it really gets going but Silver has yet to breakout!

The upshot of this is a range for Silver turning into a rally of 1400 -1500.  The former is a retest of the lower Triangle line and the latter of the weekly chart trend line (apologies this is coloured purple on my daily chart rather than grey, I have retained the 1-2 blue set up on my daily chart and shown the A-E on the weekly).  If the A-E set up is proven correct then Silver could run down much faster than Gold but price action within a consolidation Triangle is subject to a lot of whipsaw action so care is needed if you want to trade it.  More interesting will be the opportunity offered on Silver (and Gold) when the turn into the rally occurs.

[dmedin]

The big speculators are still considerably net long on gold futures.

[Mercury]

Looks like a Gold reversal, maybe into a retrace rally.  Coincident with a stocks fall and/or USD rally?

[dmedin]

On 07/11/2019 at 15:50, Mercury said:

However, from a fundamentals perspective, I really believe we need to see a breakdown in the stocks bull plus inflation fears and chaotic interest rates environment, the latter of which could come about with the Fed dropping to zero or below and the bond market cracking (i.e. increasing bond yield curves).

When/if this happens we will all have far worse things to worry about than stock prices.  You can already see uprisings and social unrest all over the world, and this will get much worse.  Socialism and fascism will arise from the dead.

[Mercury]

8 hours ago, dmedin said:

Socialism and fascism will arise from the dead.

What makes you think they were dead?

Interestingly every generation goes through an existential crisis.  In the 60s/70s it was the so-called "duck and cover" (American phrase) fear of nuclear annihilation that gave birth to CND and protests like Greenham Common in the UK.  Nuclear is still here but CND you don't hear so much about anymore.  There was the Cold War and MAD for the 70s/80s, ended with the fall of the Berlin wall, although the Russian Bear never really went away and neither did China but the Cold War generation grew up and worried about other things, like career choices, getting on the first rung of the property ladder, getting married, bringing up kids etc etc.  The 90s/00s brought us the power keg that is the Middle East, which still persists and the new Millennium ushered in the era of global climate catastrophy, which has people super gluing themselves to the very electric trains that would help the situation (madness).  And it is a kind of madness that grips the zeitgeist such that if anyone dares challenge it they are immediately attacked by the mob that truly believes they are gonna die in they don't do something.  Guess what?  Life goes on and the World keeps turning.

So cheer up, it may never happen.  And if you can't do that then buy tinned goods and lots of water and dig a bunker under your house...

[dmedin]

46 minutes ago, Mercury said:

Interestingly every generation goes through an existential crisis.

That is exactly true.

[Mercury]

Gold and Silver have been in a bit of a really of late, which now looks like it may play out as a small consolidation.  With a couple of bearish candles to end the week, after a Fib 38% turn, we could very well see these markets drop back through near term support, which would drive a much stronger bearish phase in my view.  Some decent risk reward presents itself right now if we see a continuation of the bearish price action, or better still a small scale rally and turn (sell the rallies) but a break below the recent lows will be the key.

[Mercury]

Regarding the Bearish Gild/Silver scenario, I forgot to add that short term USD strength and further stocks rallies might be likely coincidental scenarios.  It wouldn't take much, i.e. doesn't have to be a strong rally on either or especially both.  My analysis on both USD and stocks is supportive of such a slow grind rally but the impact on Gold/Silver could be much more definitive and trade worthy in my opinion.  Other than Coffee and maybe  Oil if there is a breakout I can't see much better opportunities, if you can't stomach going Long stocks.

[Mercury]

Gold/Silver is in a bullish retrace but of what sort?  If USD  and stocks turn bearish for a while then I would expect the rally to be reinvigorated.  I have an adjusted EWT set up accordingly, which consist of a complex retrace form, a set of A-B-Cs of which we are in the final wave C but it looks like being in an A-B-C form itself.  If this plays out then expect a retest of the Triangle breakouts or higher before a reversion to the Bear retrace.  I think this scenario would occur if we see a sharp bearish phase on stocks in the coming week or two and then a Santa relief rally to bottom out gold/silver (top out stocks).

  

[Mercury]

Silver has broken lower, close below on he day required to confirm but the signs are good.  Gold yet to do likewise but following, looks like the retrace has resumed.  Stock to continue higher or USD to turn lower again or both?

[Mercury]

Meant USD to go higher again not turn lower of course...  But stocks higher USD lower is ok too.

[Mercury]

Potential break lower in Gold and Silver.  It has been a bit whip-lashy of late so I will not be confident until I see key support horizontals broken but it is looking promising for a continuation of that bearish retrace.

 

[dmedin]

From what I can see on the daily time frame gold is really going nowhere, and IG don't offer the option to buy and hold (the only future is Feb 2020, and I doubt we'll get the eventual breakout before then).  Maybe put some funds in a gold-tracking ETF?