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$1100 Gold And $15 Silver Hurdles Taken . . .

August 19, 2015

But will the gold price and silver price hold? Various commentators have said over the past few weeks that the precious metals have been subjected to what seems desperate action from the intervensionists to prevent a rising trend. It is also noticeable that at the same there is unprecedented sledging from the mass media and plunging price forecasts for the metals from major banks. One could almost suspect this was a co-ordinated effort! So far, despite minor and not so minor retreats off successive intermediate highs, those key new support levels have held firm. If they continue to do so during August, and more so if there are further advances to break clear of the constricting patterns of the past 4 years, a new bull market for gold and silver could be in place.

[For readers unfamiliar with the game of cricket, the term ‘sledging’ describes the often most derogatory personal comments a fielder makes to a batsman with the clear intention of upsetting his concentration. Very apt term for what the media are trying to do to PM investors!]

In broad terms little has really changed last week. Wall Street had a few bad days, but there was ample evidence of the regular ‘assisted recoveries’ during afternoons of those days when the market started very bearish. While the dollar index was in a mostly sideways if volatile range, the euro staged a minor recovery to end right at important resistance. The yield on the US 10-year Treasury note was also mostly in a sideways drift, ending still near the lower part of its range.

News from China that caused a few ripples through most markets, however had its most effect on the precious metals. Gold broke above the recently often tested with little lasting effect $1100/oz barrier, then managed to remain there until the end of the week, even if off its highs. At the same time and mostly setting the pace, silver broke above the similar $15/oz barrier and also held firm, despite higher volatility.

Markets are clearly moving closer to the edge of a major transition – either into a definite bear trend or into a new rising trend. This while migrants are continuing to flood into Europe and causing all manner of inconveniences for their new hosts. It remains to be seen whether the inconveniences will transmute into massive social instabilities that could easily escalate into a crisis affecting all major economies.

Euro-Dollar Chart

The euro has held resolutely above rising support in a long term bull channel, XYZ ($1.0841). However, in this new analysis, influence of the steep bear channel, VW ($1.1131) is still intact, although only just. The fact that Friday’s close is marginally above resistance of line M ($1.1047), a break higher that happened last week, is a possible sign that a bullish break above bear channel VW is on the cards.

Euro-dollar, last = $1.1110 (www.investing.com)

Dow Jones Industrial Average (DJIA)

Dow Jones Industrial Index, last = 17477 (money.cnn.com)

A new steep bear trend appears to be in place, moving lower below the resistance along trend line T (17619). The break below steep bull channel XYZ (18070) at first failed to hold, with line B (17485) taking over as key support. A second break below line B is marginal only, but this week should reveal whether resistance along line T or support from line B will set direction or the near term. So far line T is still intact, while line B has yielded twice. This favours a continuation of the bear trend.

Gold PM fix - Dollars

Gold price – London PM fix, last = $1118.25 (www.kitco.com)

The price of gold improved last week, but is still technically vulnerable. The price has just kicked higher out of the sideways drift just above support from the lower boundary of pennant RZ (R: 1142, Z: 1076), but is still trapped within the pennant – having to break clear of line R to signal a definite end to leg 5 of the pennant. It would be even better if the price could break above the resistance offered line B at $1158. That would open the road for a substantial increase in the price before fresh and major resistance intervenes.

There is however still room for a sideways and lower trend before the price breaks below the support of the pennant. Line Z is still key support so that, as long as line Z holds, bullish expectations remain in force. It has been far too long a time since there was a reason to be optimistic about the future of the gold price – perhaps the coming week could bring fuel for the optimism! A definite break from pennant RZ would be most welcome.

Gold PM fix - Euro

Euro gold price – PM fix in Euro, last = €1003.6 (www.kitco.com)

The euro price of gold moved sharply lower when it broke below the stranglehold of the tightly range bound sideways trend just below line X (€1059). Relocation of the bull channel JKL, to adjust the channel ratio, now has line L (€996) as key support for the rising euro price of gold. While this bull channel remains intact, the reversal higher, just off support from lines Y (€980.5) and S (€978.4), continues to impart a bullish bias to the price.

Silver Daily Fix Chart

Channel XYZ has been slightly adjusted to improve the channel ratio – a feature of channels that assist in the proper location of the trend lines. The chart shows three major narrowing formations, which are, with their support: a pennant FM ($10.48), the pennant FZ ($14.47) and the triangle FD ($15.28), with resistance at line D at $15.90. Pennant FM, hopefully, is out of play as support is way below the support at line Z that had contained the new downward move.

The fact that the price has broken just above resistance at line F – doing so for the second time – is a positive sign. While the earlier break was at the end of leg 3 of the pennant FZ, and this could be assumed to have happened in order to satisfy the resistance at line Y ($17.36). Now that tentative break higher happened at the end of leg 5 of the pennant this, if the break manages to extend higher, would be more convincing as a signal that the pennant has served its purpose and that a new bull trend is in place.

The price earlier held well within the triangle FD, but broke lower as it was moving into the apex of the triangle. The break lower happened when both precious metals out of the blue came under severe pressure at the same time – widely interpreted as a sign of desperation from those favouring a lower price for the metals. Support at line Z held firm over a number of days and the new reversal higher with a minor break above line F holds fresh promise for the metal.

Silver daily fix, last = $15.55 (www.kitco.com)

U.S. 10-year Treasury Note

The yield on the 10-year Treasury note is still in its very volatile, mostly sideways trend, with a new bullish bias. The low of 2.166% set ten days ago was lowered to 2.136% last week, within a wide range topping at 2.238%, just below the 2.40% level which seems to where renewed buying of Treasuries has repeatedly brought the yield lower – with 2.0% the typical market resistance, but which has remained out of reach of the volatile swings since April earlier this year.

There is thus clearly an upward bias in the range of volatile movement in the yield – with apparent increasing difficulty to get the yield below 2.1%. Should the current attempt also fail to do so, bonds could be joining equities in what seems to be the general bear trend awaiting major markets.

U.S. 10-year Treasury note, last = 2.201% (www.investing.com)

West Texas Intermediate crude. Daily close

West Texas Intermediate – Daily close, last = $44.94 (10 August)

The latest official EIA price from Cushing is for 10 August. The steep bear trend has reached the level of previous support at line D ($44.64), but it did dip lower briefly before the price recovered to be a fraction higher on 10 August. Since then there has been churning around line D and it is not yet clear whether a break lower is on the cards.

As it is, the price around this level presents a major problem for fracking operators – and perhaps more prominently so for those banks that have funded their working capital, which soon will not be serviced if not already so. This would most certainly result in a fresh bailout operation as it cannot be allowed that a bank should end in so much trouble that it has to close its doors.