The Gold Market Review

Market Update

What a difference two weeks can make! After an agonizing and confusing sideways draw during the summer which kept the bulls happy and lulled them in security the gold market has now shown its ugly face again. Fortunately two weeks ago I had laid out a worst case scenario which has now played out as the critical level of $1,315 indeed has been broken again. Back in early July I already wrote about a necessary pullback towards $1,262 but discarded that as unlikely because gold held up more or less well over the summer.
After last week´s mini-crash it is clear that the smart money hedgers who have been holding a record high short position for months are now forcing the speculators and trend-followers to liquidate and capitulate their long positions. I am afraid that the pullback is not yet sufficient enough to clear out the CoT-report and bring the commercial short position down to contrarian buy levels.

The big question of course remains whether the $330 rally since December 2015 was just a bear market rally or the start of a new multi-year bull market. I think this is the most important insight we need to gain as soon as possible but it will probably take some more time to see clear. Because nobody knows the future my approach towards the market always is to lay out as many scenarios as possible to be prepared for any outcome. Therefore in today´s report I am going to present you a bearish and a bullish scenario for gold. I have added clear price levels and conditions in regards to the probability of each one. I hope to help you to get more clarity and gave my best to create a market schedule as a guide for the next couple of months.

Since early 2015 the US-Dollar is caught within a sideways consolidation against the Euro and now seems to be breaking out of a triangle. A stronger US-dollar usually puts pressure on gold and commodities. On top the S&P500 is about to break down from its 2016 uptrend-line.

At the same time it´s very pleasing to see that our cryptocurrency investments are doing so well and do compensate for the challenging situation in the precious metals sector right now. Please, do yourself the favor and make sure to diversify some of your money (even if its just a very small amount) into these exiting cryptocurrencies.

The Midas Touch Gold Model Neutral Since 15th Of September

Compared to last week we have the following bullish changes:
SPDR Gold Trust Holdings

GDX Goldminers - Sentiment

Two signals turned bearish:
Gold USD - Weekly Chart

GDX Goldminers - Daily Chart

Two signals shifted to neutral:

US Real Interest Rate

Gold in $, €, £, ¥

Here are the model´s latest conclusions:

Bullish: 24th of June 2016

Neutral: 22nd of August 2016

Bullish: 6th of September 2016

Neutral: 15th of September 2016

Again the model has done a great job to keep us out of trouble and we should never act against its wisdom! Right now it does not take too much to change its conclusion into a sell signal.
I think the most important point to watch is the monthly chart. If gold moves below $1,220 we can be pretty sure that something is wrong. Therefore as long as it can hold above this level the bigger picture remains bullish and the model should soon or later shift back into bull mode.

Another interesting insight comes from the US Real Interest Rate. This rate has been digging deeper and deeper into negative territory over the last couple of months. Now it has recovered rather fast over last 10 days from -0.745% to -0.55%. That alone is a great explanation for gold´s recent sell out....

Gold - The Obvious Bullish Scenario

Due to the liquidation wave in the COMEX future paper market the gold price is down more than $135 (-9.8%) from its recent high in early July. This is a healthy and necessary pullback which offers the chance to buy the dip. The price target of the multi-month descending triangle pattern has already been reached at $,1240.
Basically gold has just corrected back to its rising 200-day moving average ($1,262). Yes, gold did shoot over to the downside but this important moving average should act like a rubber band and is already stretched. As well Gold now is getting pretty oversold on its weekly chart for the first time since last December and it has reached the weekly lower Bollinger Band  ($1,248) which is usually a very strong support on the first attack.

Therefore a bounce could quickly bring gold back to the falling 18-day moving average ($1,299). Even a recovery directly back to the 50-day moving average ($1,319) would be possible. But from a rational perspective gold likely will need more time to digest this pullback.

What would increase the odds for the bullish scenario?

- Gold can quickly recover above $1,300

- Gold above $1,325 would be extremely bullish

- Gold can at least hold above $1,240 and especially above $1,220
- ETF demand for gold remains strong
- Next CoT report shows strongly reduced commercial short position

How can we make money in this scenario?

- Continue with our strategy

- Buy this dip in gold and the mining stocks

- Be aware that we could see a bounce followed by another sell off followed by a sustainable rally towards $1,500

In the bigger picture the midterm price target around $1,500 - $1,530 until spring 2017 will be active again should gold move above $1,325.

Gold - A Potential Bearish Scenario

"Bottoms in the investment world don´t end with four-year lows; they end with 10- or 15-year lows." - Jim Rogers



"The one who wants to protect his fortune doesn´t believe in anything but plans for everything." - Amschel Mayer Rothschild

Although its way too early for confirmation I thought it´s time to lay out a theoretical bearish scenario to make sure we are prepared for everything. In this case gold would move back towards $1,025 and make new lows..!!! But let me explain:

The 330$ rally since December 2015 has seen an important high at $1,262, an important low at $1,200 and another important high at $1,375. The weakness in gold since last week´s sell off is obvious. Should gold continue to slide lower it will very likely find a bottom somewhere around $1,210 - $1,220 followed by a sharp recovery towards $1,295 - $1,300. In that case we would have most of the ingredients for a bearish head and shoulder pattern if gold fails at the strong resistance around $1,300. If gold then comes all the way back down to the $1,200 neckline the pattern will get more and more obvious. A break through $1,200 finally will confirm the pattern and activate a price target at $1,025 based on the pattern height of $175.

What would increase the odds for this theoretical bearish scenario?

- Gold below $1,220 would shift the bigger picture (see Midas Touch Model)

- Gold continues the current sell off down to the neckline around $1,200

- Gold does not move back above $1,300 within the next 1-3 months

- Gold is breaking through the neckline at $1,200 (pattern confirmation)
- Gold is moving below $1,170 (= retracement larger than 61.8% of $330)

How can we make money in this scenario?

1. Buy gold around $1,200 - $1,220 and sell into the recovery around $1,295

2. Sell gold short around $1,295 with a stopp above $1,325 and hold this short-position until $1,025...


Midas Touch Consulting Portfolio And Watchlist

Our portfolio gave back some of our profits but overall we are well positioned for the next leg up in the precious metals sector. Should it not play out our stops will protects us.

Ether (ETHUSD):

Ether has been in a correction since mid of September but we are still nicely up. The promising cryptocurrency now is very oversold and is getting ready for a bounce. Once it can overcome $14-$15 we should see it quickly rising towards $20. Let your winnings run and move your stop to $10.40.

Endeavour Silver (EXK):

My favorite silver stock Endeavour Silver did give back quite some gains in the last two weeks. But with a production of 1,284,646 Oz Silver and 14,364 Oz Gold in the third quarter the company is well on track to meet full year revised guidance. Continue to hold and let your winnings run.

Brazil Resources (BRI.V):

Due to the recent pullback in the mining sector Brazil Resources is now reaching interesting price levels again.  If you´re not already invested the stock is very oversold and a good buy  on current levels around 2.50 CAD.

Gold Miners ETF (GDX):

We jumped into the correction in the mining stocks a bit too early but GDX now is extremely oversold while sentiment is reaching very pessimistic levels. If you are not invested yet this is your chance to buy. Otherwise keep your stop at $21.

Junior Gold Miners ETF (GDXJ):

The Junior Miners have now retraced 44% of their impressive rally in 2016. The ETF is very oversold and is getting ready for a bounce. After revisiting the chart I recommend to put the stop at $34 as the 200-day moving average comes in around $35,67 and might be tested.

Long-Term Personal Beliefs (my bias)

Officially Gold is still in a bear market but the big picture has massively improved and the lows are very likely in. Gold was able to push above the Januar 2015 high at $1,307 and we finally looking at a series of higher highs. If this bear is over a new bull-market should push Gold towards $1,500 - $1,530 and Silver towards $26.00 within the next 8-24 months.

My long-term price target for the DowJones/Gold-Ratio remains around 1:1.
 
and 10:1 for the Gold/Silver-Ratio. A possible long-term price target for Gold remains around US$5,000 to US$8,900 per ounce within the next 5-8 years (depending on how much money will be printed.).

Fundamentally, as soon as the current bear market is over, Gold should start the final 3rd phase of this long-term secular bull market. 1st stage saw the miners closing their hedge books, the 2nd stage continuously presented us news about institutions and central banks buying or repatriating gold. The coming 3rd and finally parabolic stage will end in the distribution to small inexperienced new traders & investors who will be subject to blind greed and frenzied panic.

Bitcoin could become the "new electronic money" for the digital 21st century. It is free market money but surely politicians and central bankers will thrive to regulate it soon.

If you like to get regular updates on our gold model, gold and bitcoin you can subscribe to my free newsletter here: http://bit.ly/1EUdt2K

© Florian Grummes 2016 all rights reserved

Hohenzollerstrasse 36, 80802 Munich, Germany

Disclaimer & Limitation of Liability

The above represents the opinion and analysis of Mr Florian Grummes, based on data available to him, at the time of writing. Mr. Grummes's opinions are his own and are not a recommendation or an offer to buy or sell securities. Mr. Grummes is an independent analyst who receives no compensation of any kind from any groups, individuals or corporations mentioned in the Midas Touch. As trading and investing in any financial markets may involve serious risk of loss, Mr. Grummes recommends that you consult with a qualified investment advisor, one licensed by appropriate regulatory agencies in your legal jurisdiction and do your own due diligence and research when making any kind of a transaction with financial ramifications. Although a qualified and experienced stock market analyst, Florian Grummes is not a Registered Securities Advisor. Therefore Mr. Grummes's opinions on the market and stocks can only be construed as a solicitation to buy and sell securities when they are subject to the prior approval and endorsement of a Registered Securities Advisor operating in accordance with the appropriate regulations in your area of jurisdiction. The passing on and reproduction of this report is only legal with a written permission of the author. This report is free of charge. You can sign up here: http://eepurl.com/pOKDb

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Florian Grummes 

Hohenzollernstrasse 36 

80801 München

Germany

E-Mail: [email protected] 

Website: www.goldnewsletter.de