Gold Market Update
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Action in the Precious Metals markets yesterday was VERY bearish and confirms our suspicion that an intermediate top may be forming that could lead to a brutal correction. Yes, yes, we know how bullish open-ended QE is for gold and silver and how the dollar is doomed etc, but so does everyone else – and the latest COTs show that both Large and Small Specs have thrown everything they have got at this uptrend, as we observed at the weekend. The trade is now dangerously overloaded on one side of the scales and a larger dollar rally, which looks likely on technical grounds, could trigger a sudden rout in the PMs.
Gold made new highs intraday yesterday, as we can see its 3-month chart below, but couldn’t hold the gains and fell back into the potential intermediate top pattern, leaving behind a candlestick on its chart that approximates to a bearish “Shooting Star”, the second such bearish candlestick in just over a week. Volume has remained high as the price has tracked sideways, another warning that a top may be forming, and of course, these warnings follow failure of the uptrend shown. Tactics for traders here are clear cut and simple - TAKE PROFITS AND GO SHORT, but reverse position immediately following a close above yesterday’s intraday high, should this occur. This of course will sound pure lunacy to many of you reading this, which is exactly why it could work out well, and anyway, with the stop out point so close by above and well defined, where’s the risk??
The gold COT chart required rescaling because the Commercial short and Large Spec long positions “flew off the scale”. Although these positions can of course get even more extreme if gold makes another upleg, they indicate a high probability that an intermediate top is forming, especially given yesterday’s action in the gold market.
What about the broad market? – although its shorter-term uptrend has not (yet) failed, unlike gold and silver, as we can see on its 3-month chart below, action in the recent past has been negative, with a bearish “Gravestone Doji” appearing on the S&P500 index chart on the highest volume for many months, which we took as a warning at the time, and yesterday a large, bearish “Shooting Star” candlestick appeared on the chart that portends imminent failure of the uptrend that could lead to a steep drop.
Now we come to the all-important outlook for the dollar. While we are amongst the first to admit that the outlook for the dollar is not exactly rosy, what with its enemies at the Fed ganging up to destroy it, short-term it is quite heavily oversold, as we observed at the weekend, and could be due a larger rally as projected on the chart below to complete its potential Head-and-Shoulders top. Such a rally would be the perfect excuse for a sharp correction in the Precious Metals.
In the light of the above observations it is thus most interesting to examine the latest Euro FX COT. This chart shows that Large and Small Specs have collapsed their short positions in the euro back almost to the zero line, which means that they have ceased to be bearish on the euro, which also means that they have ceased to be bullish on the dollar. Back in the Summer the Large and Small Specs, force fed with a diet of misleading news by the mainstream financial media, were encouraged to go heavily short the euro, and they were subsequently fleeced when it staged a big rally, while the Commercials were laughing all the way to the bank, as usual. This chart suggests that a larger dollar rally is in the works. Of course the dollar’s fundamentals are awful, but at this point that could all be priced in.
Silver Market Update
Clive Maund
The story for silver at this point is much the same as that for gold, but as usual, more extreme – with silver there are bigger gains to be harvested, and bigger prospective profits if it now reverses violently to the downside, which could be occasioned by a larger dollar rally, as predicted on the site at the weekend. Silver made a new intraday high yesterday, ended the day with a bearish “Shooting Star” on its chart, again on higher volume, and looks vulnerable to a sharp drop if the support in the $33.40 area is breached. Tactics for traders here are clear cut and simple and the same as for gold - TAKE PROFITS AND GO SHORT, but reverse position immediately following a close above yesterday’s intraday high, should this occur. Overhead stop out point is close by and well defined, so risk is known and limited.
The latest silver COT chart shows that Commercial short and Large Spec long positions have risen even more to another record for the period of this chart – the Large Specs are clearly “betting the farm” on this uptrend, so it will be really sad for them if they get it wrong – it would have been better for them if they had done this back in June, when silver was $6 cheaper. This chart is, or should be, profoundly alarming for any traders long silver at this point.
Clive Maund, Diploma Technical Analysis
Copiapo, Chile, 2 October 2012
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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
