Gold & Silver Review

Review:

• In my analysis from 26th of November I wrote: "After a setback that should hold above the US$1,175.00 level the 200-MA (US$1,276.58) becomes the logical next target". We are there now! Unfortunately in my update from10th of December I recommended to move the stopp loss above US$1,205. Therefore we got stopped out with a small gain of US$30 per ounce and did not participate in the last leg of this rally.

Arguments for lower prices:

• 3.5-years downtrend: Overall Gold still is in a downtrend. US$1,525.00 remains the line in the sand. Gold will need much more time to break through this heavy resistance. Only a move above US$1,350.00, US$1,390.00 and especially US$1,430.00 will indicate that the mid- and longer-term trend indeed has changed. Any sustainable move above US$1,285.00 would already brighten up the technical picture. The 8-year cycle for Gold should bring a significant final low somewhere in 2015/2016. The current overbought situation is quite similar to the last tops in 2014 at US$1,392 and US$1,346.
• Gold Weekly Chart: Gold is still moving within the bearish descending triangle but has slightly jumped above the downtrend channel resistance. If this bearish triangle formation is valid Gold should top out around US$1,300 - US$1,310.
• Gold Daily Chart: Short-term Gold is getting overbought and has reached heavy resistance around US$1.280,00. It is moving outside its Bollinger Bands 2 days in a row already which gives it another 2-3 days at a maximum before this parabolic advance may be over.
• CoT-Data: With the latest reported net short position of 137,676 contracts the commercials have already ramped up their hedges. I am very sure that by now - as Gold is more than US$50 higher - the "smart money" has massively increased their shorts - probably to the July 2014 levels. A strong warning signal that this rally is not sustainable.
• Euro-Gold: I had presented the ascending triangle in €-Gold many times during the last 6 months. Finally €-Gold broke through the resistance at 1,000€ on the 2nd of January and is on the verge since then. A measured move would see €-Gold´s advance to continue until around 1,040€. This target would be right in the middle between the 50% and 61.8% retracement of the whole correction since 2012. Be aware that a return to the breakout level is quite typical for this formation. The former horizontal resistance line of the ascending triangle now is strong support. The overbought situation is suggesting a return to around 1,000€ - 1,050€ within the next couple of months.
• Gold Stocks Sentiment: HUI Goldbugs index shows extreme optimistic sentiment readings (100). This is not sustainable.
• Euro: The Euro is extremely oversold and probably very near to a significant low. During Friday afternoon a hammer candlestick appeared on the chart while the MACD is at its third lowest momentum level in the history of the Euro. European QE is now being priced in and there are big expectations for Signore Draghi next week. The pressure is so big that a confirmation as well as a disappointment could lead to a massive short-covering rally in the Euro next Thursday. The CoTs suggest this already since some time. The collapsing Euro has been a major driver for Gold in the last 2 weeks.
• Gold/Oil-Ratio: At 26.18 the ratio is extremely overbought, out of balance, at a 6-year high and at the same levels as of the 2006 deflationary crash. Gold is totally overpriced in relation to oil. A reversion back to the mean would see Gold falling while Oil might start a recovery.

Arguments for higher prices:

• Gold Monthly Chart: The long awaited MACD buy signal is getting very close, but we are not there yet. Looks like it could happen anytime soon.
• Gold Weekly Chart: The "Parabolic Sar-Indicator" is flashing a buy signal since 7 weeks already. MACD, RSI and Stochastic are not yet overbought and are all in bull mode. Gold needs to break though US$1,310 to strengthen the bullish case.
• Gold Daily Chart: Gold delivered a strong start into the new year. The slow stochastic indicator is bullish embedded. The uptrend is locked in and Gold might have the power to push towards US$1,300-1,310. Also it is very likely that any dip towards US$1,240 (former resistance) will be bought. Obviously the technical picture is improving.
• Euro-Gold: €-Gold is exploding higher since breaking through the 1,000€ resistance level. There is a lot of momentum in this rally although its getting ahead of itself. The next strong resistance comes in around 1,200€
• Seasonality: Seasonality still is very supportive for Gold and Silver until mid of February.
• Gold/Silver Ratio: After 2 month of trading back and forth it looks like Silver could finally start to outperform Gold. This is essential for a trend change in the precious metals sector.
• Gold-Stocks: The HUI Goldbugs index had a great start into the new year. Since the double low mid of December the index is up around 33.5%. Gold stocks leading the sector higher which is a positive sign.

Conclusion:

• The rally during the last two trading days and also generally since beginning of the new year has been driven by €-Gold breaking finally out and above the 1,000€ resistance. We are now at an important pivot- or game changer point. As long as Gold stays below US$1,285 or at a maximum below US$1,310 the bearish case is still valid and suggests a new price low within the 1st or 2nd quarter of 2015. If instead Gold breaks out above US$1,300 the first logical resistance will be the July high at US$1,346. Of course the probability for an extended up-move towards US$1,500 would dramatically increase too.
• At the moment swing-traders should wait at the sidelines. Although the US$1.280 level offers a great risk/reward entry for a short sell I´d be waiting until the ECB-meeting is done as this event will likely create quite some volatility and uncertainty in the markets. At the same time buying gold at current levels is way too risky as Gold is getting overbought.
• Investors with a long-term perspective should continue to accumulate physical Gold below US1,200.00 respectively 1,035€. I recommend to put 10-20% of your net-worth into physical Gold and Silver as an insurance and hedge against the growing imbalances in our financial system. But don't chase prices. Right now Gold & Silver are too expensive if you are already invested.

Longterm:

• Nothing has changed
• Precious Metals secular bull market continues and is moving step by step closer to the final parabolic phase (could start within 1-2 years and last for 2-5 years or even longer)
• Price target DowJones/Gold Ratio ca. 1:1
• Price target Gold/Silver Ratio ca. 10:1 (for every ounce of gold there are 9 ounces of silver mined, historically the ratio was at 15:1 during the roman empire)
• My personal price target remains at US$5,000.00 to US$8,900.00 for Gold within the next 5-8 years
• Fundamentally, when the current bear market is over Gold should start the final 3rd phase of this long term 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 investors who will be subject to blind greed and frenzied panic.

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