Gold Market Update
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Gold has shown impressive strength over the past couple of weeks having risen as high as the $1800 area. On our 6-year chart we can see how it has punched through the resistance at the upper boundary of an important inner trend channel, and despite now being hugely overbought, appears to have its sights set on the outer trend channel boundary now in the $1900 area before this strong upleg is done.
On the 6-month chart we can see recent action in more detail. While it certainly looks extremely overbought on its MACD indicator on this chart, we can also see reasons why it could well continue higher over the short-term anyway, namely the moderation of the short-term overbought condition shown by the RSI indicator and the volume dieback on the reaction of recent days, which is bullish.
The view that gold is set to turn higher again and advance to the $1900 area before this intermediate term upleg is done is supported by the latest COT chart, which shows a marked reduction (as of Tuesday last week) in the Commercial short and Large Spec long positions - which is not what you would expect to see if gold were set to react back more heavily.
While our immediate target for gold is the $1900 area, we cannot rule out and would not be especially surprised by a "rocket move" developing soon, which would involve it blasting out of the upper channel and accelerating upwards in a parabolic arc. This would of course be likely to synchronize with a severe drop in the dollar with gold being given an added boost by the decreasing popularity of Treasuries - if only a tiny fraction of the panic money that flees into Treasuries were sluiced instead into Precious Metals, they would go ballistic.
Silver held up surprisingly well during the stockmarket collapse - you will recall that we had expected it to take more of a beating - no doubt assisted by gold's sparkling performance, so that now, having held above strong support, and with a marked improvement in its COT structure over the past week, it is believed to be poised for a really strong upleg.
The 6-month chart for silver shows HUGE upside potential, with a powerful uptrend starting from right where we are now. If the interpretation of the wave count is correct (this can be a big "if" of course, but it does look very clear at this point), then the point we are at now is close to the trough of the wave 2 reaction that should now immediately lead to a strong wave 3 uptrend, all this following the 3-wave A-B-C correction shown on the chart. Even without reference to wave theories the chart certainly looks encouraging as silver managed to break above the quite strong resistance in the $39.00 - $39.50 zone on its wave 1 advance which is now functioning as a support level, in addition to which its moving averages are now in bullish alignment and it is not overbought on short to medium-term oscillators as made clear by the RSI and MACD indicators on the chart. Everything appears to be in place for a big rally to get going - "all systems go" as they used to say.
Further evidence that a big rally is brewing in silver is provided by the latest COT chart, which shows a surprisingly large reduction in Commercial short positions in just one week - the Commercials are getting out of the way, which signals a rally - and it may have just started with today's 85 cent rise.
Clive Maund, Diploma Technical Analysis
[email protected]
www.clivemaund.com
Copiapo, Chile, 16 August 2011
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Clive P. Maund’s interest in markets started when, as an aimless youth searching for direction in his mid-20’s, he inherited some money. Unfortunately it was not enough to live a utopian lifestyle as a playboy or retire very young. Therefore on the advice of his brother, he bought a load of British Petroleum stock, which promptly went up 20% in the space of a few weeks. Clive sold them at the top…which really fired his imagination. The prospect of being able to buy securities and sell them later at a higher price, and make money for doing little or no work was most attractive – and so the quest began, especially as he had been further stoked up by watching from the sidelines with a mixture of fascination and envy as fortunes were made in the roaring gold and silver bull market of the late 70’s.
Clive furthered his education in Technical Analysis or charting by ordering various good books from the US and by applying what he learned at work on an everyday basis. He also obtained the UK Society of Technical Analysts’ Diploma.
The years following 2005 saw the boom phase of the Gold and Silver bull market, until they peaked in late 2011. While there is ongoing debate about whether that was the final high, it is not believed to be because of the continuing global debasement of fiat currency. The bear market since 2011 is viewed as being very similar to the 2-year reaction in the mid-70’s, which was preceded by a powerful advance and was followed by a gigantic parabolic price ramp. Moreover, Precious Metals should come back into their own when the various asset bubbles elsewhere burst, which looks set to happen anytime soon.
Visit Clive at his website: CliveMaund.com
