Queen Gold Changes Horses In 2014

In the biggest picture, Western precious metals investors are going to have their golden cake, and eat it too!

As the year 2013 comes to a close, I think it’s wise to review some longer term charts.  That’s a weekly gold chart, and there’s what I would term a “commodity-style” double bottom pattern in play.

Commodity markets can create valid patterns that don’t quite meet the strict requirements of the Edwards and Magee handbook on technical analysis. 

Technical rules should be applied more loosely to commodity charts, because the use of leverage can distort price patterns.

In the case of this weekly gold chart, the time period between the first bottom and the second potential bottom is a little bit too long, but I think the shape of the pattern makes it valid.

A rise above $1434 ushers in a target of about $1680.

That’s a view of large speculator liquidity flows in comex gold contracts, courtesy of sentimentrader.  There’s a double bottom pattern in play that fits with the double pattern on the weekly chart.

Just as the stock market tends to anticipate future economic news, the comex gold market liquidity flows can anticipate future gold market news. 

If gold begins to rise in 2014, would that be a simple short covering rally, or could the market be anticipating something bigger, like a Narendra Modi victory in the Indian election? 

The double bottom pattern seems to suggest that some key bullish news is coming soon, and an official return of India’s citizens to the gold market could create enough buying to push gold towards the $1680 target zone.

That’s a quarterly bars chart that compares silver to the US T-bond. 

If gold and silver are transitioning from a Western-centric bull market to an Asian-centric bull era, then super-sized chart patterns should appear in these markets, and this appears to be the case with silver. 

This ratio chart shows a gigantic head and shoulders bottom pattern in play, and it suggests that in 2014 silver should begin to outperform the T-bond for many years, and potentially for decades. 

Note the action of the Stochastics indicator (14,3,3 series) at the bottom of the chart.  Not all of the crossover buy signals have produced sizable moves in the silver price, but the overall track record of this indicator on the quarterly bars chart is very good.

If growth is the dominant theme of the world’s economy in 2014, silver should perform better than gold, because of its significant use in industrial applications. 

If that growth combines with Japanese QE to create rising inflation, silver should also do well, and it could also outperform gold in that environment.

This is a quarterly bars chart of the Dow.  It covers more than a century of data.   I would argue that the current institutional rush into the stock market resembles the public’s rush to buy, in the year 1929.

The red trend line resistance that I’ve highlighted on the chart is strong, and there’s some frightening broadening price action in play.

I have no idea if the Dow will crash in 2014, like it did in 1929, but I only buy significant price weakness, so I have no interest in joining these institutional “price chasers” as they buy. 

Many of them are using the savings of elderly pensioners, to buy a stock market that has risen nearly 200% percent from the lows of 2009.  That’s a financial cocktail that value-oriented investors should avoid like the plague.

This is a quarterly bars chart of the HUI index.  The Stochastics indicator (14,3,3 series) is near the lows it hit in the year 2000, and the MACD (3,6,9 series) is beginning to turn up, and the histograms are rising.

The action of the histograms is not confirming the new lows in price.  If Chinese gold demand stays roughly where it is now, Indians import restrictions end, global growth rises, and Japanese inflation begins, gold stocks could have a very good year in 2014.

This is a quarterly bars gold chart.  Professional investors seek to minimize risk and mazimize reward.  From a technical perspective, there is massive buy-side HSR (horizontal support and resistance) quite close to the current price.

Whether the double bottom pattern on the weekly chart activates or fails, the fact is that gold is near three enormous support zones.  It makes more sense to be a buyer than a seller when the price is so close to powerful buy-side HSR.

As the year 2013 comes to a close, the Western super-crisis has entered a lull period, and an Asian citizen gold demand era begins.  It could be said that your “Queen Gold” jockey is changing horses in 2014.  She’s moving from a Western racehorse… to an Asian Clydesdale.   In the biggest picture, I think this means that Western precious metals investors are going to have their golden cake, and eat it too!

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Stewart Thomson 

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