Bearish Reversal in Precious Metals At Resistance...Again

The precious metals sector sharply reversed course after the Federal Reserve hinted that it may raise rates at its next meeting. This about face from the Fed was enough to effectively end the fledgling rally that began in the summer and threatened to take metals and miners higher to their 400-day moving averages. The prevailing thought was the Fed was on hold for a while and this paved the way for more strength in the precious metals complex. Thoughts be damned! The Fed has whipsawed gold bugs (and me) again. 

Below we show the weekly candle charts for Gold and Silver and their 40-week (200-day) moving averages. Gold tested moving average resistance in each of the past three weeks. The Fed decision induced a nasty reversal on the chart as Gold went from trading above resistance to well below it. Gold also lost the key weekly pivot point around $1150-$1160. Silver formed the same bearish reversal after testing moving average resistance during each of the past four weeks. (Another important point is Gold failed at $1180 on the monthly chart). 

The implications of the dramatic reversal could be that the metals have new lows ahead and that Gold could have a date with $1000/oz in the near future.

In order to give the current bear market in Gold proper context we looked at the absolute longest bear markets from the past. It turns out that three bears have lasted a full five years before a sustained rebound. We already know of the 1987 to 1993 bear. In regards to the 1996 to 2001 bull, Gold made its price low in 1999 yet didn’t bottom in terms of time until 2001. Something similar took place during the 1980 to 1985 bear market. History suggests the current bear market could last another nine or ten months.

If the Fed said something different then bullish conditions may have persisted but in any case we always have to respect the market. The precious metals sector formed a clear bearish reversal at important resistance. It augurs badly for gold bulls and gold bugs. While we strongly believe Gold remains in a secular bull market, we believe it’s possible that the current bear market could last well into 2016. The specter of $950 to $1000 Gold looms larger now and readers are advised to cut losses and prepare portfolios for the bearish scenario.

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As we navigate the end of this bear market, consider learning more about our premium service including our favorite junior miners which we expect to outperform into 2016. 

Jordan Roy-Byrne, CMT

[email protected]