Gold Market Update
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Gold and silver dropping back again late last week had investors in the Precious Metals sector feeling despondent, especially as their fears were magnified by at least one analyst calling for gold to drop to the low $900’s or even lower, which is normal when prices sink, but our charts are instead suggesting that gold and silver are close to completing giant bottoming patterns that started to form (in the case of gold) as far back as 2013.
We can best see gold’s potential giant base pattern on a 10-year chart. It can be described as a complex Head-and-Shoulders bottom or as a Saucer, and is best considered to be both, or perhaps as a hybrid having the characteristics of both patterns. In any event, as we can see on this chart, it appears to be drawing close to breaking out of it, which will be a very big deal if it happens, because a base pattern of this magnitude can support a massive bullmarket. As for timing it could take several months and it is most likely to happen during gold’s seasonally strong period from July through September. To maintain the bullish case it must stay above the Saucer boundary.
Embedded within the giant H&S or Saucer base pattern, a fine Cup & Handle base has formed over the past year which we can see to advantage on the 1-year chart. The Handle part of this pattern may be regarded as a period of consolidation / reaction that has allowed time both for the earlier overbought condition arising from the rally from November through February to unwind and also for the moving averages to slowly swing into a much more favorable alignment, which has now happened.
On both of the above charts the drop late last week looks like “a storm in a teacup” or given the pattern shown on the 1-year chart, a storm just outside a teacup, and latest COTs reveal the reason for it – the Large Specs had suddenly become too bullish, which meant that they needed to be disciplined. While COTs have doubtless improved as a result of the drop on Thursday and Friday (we won’t find out until next week), the Large Specs may require some more time in the correctional facility, especially as June and July are not seasonally good months for the Precious Metals, so it would not be surprising to see some more downside during the weeks ahead before both gold and silver take a turn for the better from July onwards.
The following seasonal chart shows that June tends to be somewhat negative for gold on average, although it won’t be this year if Iran is attacked.
The conclusion is that the big picture for gold and silver continues to look strongly positive, although we may first have to contend with weakness between now and July due to the current downtrend coupled with negative seasonal factors until the end of June, which should present a window of opportunity to build positions across the sector ahead of the expected late Summer advance that promises to be very substantial if gold succeeds in breaking above the key $1400 level.
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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
