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Gold and Silver By: Florian Grummes

1. Personal Note

Happy New Year and all the best for you. May this year bring you Love, Health, Happiness and Abundance.

After taking a break for holiday I am back writing my bi-weekly gold analysis for all my international readers. I'd be very grateful if you can forward this newsletter to all your friends and people who might be interested in. Here is the link. THANK YOU!

2. Update

Arguments for lower prices:

  • Gold continues to be weak short term, still in downtrend since early October, so far lower highs and lower lows
  • Gold still below falling 50-MA (US$1,696.59) and currently fighting with 200-EMA (US$1,678.21)
  • Recovery since latest sell off still kind of muted and slow, not impulsive character
  • Gold overall still trapped in sideways movement (between US$1,525.00 and US$1,795.00) since September 2011
  • Latest COT Data for silver and especially palladium continue to be negative
  • Gold and other commodities are not taking advantage of recent Dollar weakness
  • Mining Stocks continue to perform weak, HUI index way below falling 200-MA & 50-MA
  • VIX (Chicago Board Options Exchange Market Volatility Index) at 3-year low. Within the next couple of weeks we should see some form of correction in the stock market which could affect precious metals as well ("Risk-Off"?)
  • Indian Government trying to decrease gold imports

 

Arguments for higher prices:

  • After heavy selling Gold formed a bullish hammer (reversal pattern) right at 61.8% Fibonacci retracement.
  • Gold broke out above bullish wedge down trendline two days ago
  • RSI and Slow Stochastic did not confirm lower low (positive divergence)
  • MACD Buy Signal on daily chart
  • Support along last summer highs around US$1,625.00-1,640.00 has held so far
  • Longer term Gold in similar correction pattern like 2008/2009. Breakout above US$1,920.00 expected to happen in summer 2013
  • Gold in japanese Yen is testing all time highs (breakout will be very bullish for gold!!!)
  • COT-Data for Gold is slightly positive. Commercials short position still away from optimal levels around -150k but commercials have reduced their shorts significantly.
  • Sentiment extremely bearish and at levels from which rallies can be expected to start. (Market Vane Bullish Consensus below 60% and Bernstein's Daily Sentiment Index at multiyear low!!)
  • Seasonality until February and even until May quite positive for precious metals sector
  • For the first time since September 2011 Platinum is more expensive than gold again. The Platinum-to-Gold Ratio is breaking out to the upside.
  • Strong physical coin demand in U.S.
  • Germany will start to repatriate a part of its Gold reserves
  • FTSE All World Stock index at highest level since May 2011 (so far "Risk On" continues) & Chinese Stock market in new uptrend
  • Never fight the FED. Unlimited QE -> money printing all over the world will push asset prices in all sectors higher...
  • Throughout history, periods of massive money creation have always been inflationary and this time should be no different.

Conclusion:

  • Gold has been in a downtrend since early october. Although I gave you US$1,635.00 as the downside target for a possible ABC-correction I continued focusing on a potential triangle pattern as the end of the correction. As we all know Gold broke below US$1,696.00 and sold off heavily into the first week of the new year.
  • Now US$1,696.00 - US$1,704.00 is the line in the sand. If Gold can move above this strong resistance zone the probability for a continuation to US$1,795.00 increases dramatically. This will signal that the sideways consolidation pattern is about to end soon because bears could not push prices back below to US$1,550.00 - 1,525.00.
  • If Gold instead should struggle right where we are now, I'd expect either a sideways movement or another wave of selling that might take out US$1,640.00 on a daily close.
  • Due to the very negative sentiment, the strong performance of gold in japanese Yen and the renewed strength in asian overnight trading I think the upside is the more likely outcome and chances are good that gold will make a move to US$1,800.00 within the next 1-3 months.

 

Long term:

  • Nothing has changed
  • Precious Metals bull market continues and is moving step by step closer to the final parabolic phase (could start in 2013 & last for 2-3 years or maybe later)
  • Price target DowJones/Gold Ratio ca. 1:1
  • Price target Gold/Silver Ratio ca. 10:1
  • Fundamentally Gold is still in 2nd phase of this long term bull market. 1st stage saw the miners closing their hedge books, 2nd stage is continuously presenting us news about institutions and central banks buying gold. 3rd and finally parabolic stage will bring the distribution to small inexperienced new investors who then will be acting in blind panic.

Source: Midas Touch


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