Best of the Week
Most Popular
1. TESLA! Cathy Wood ARK Funds Bubble BURSTS! - 12th May 21
2.Stock Market Entering Early Summer Correction Trend Forecast - 10th May 21
3.GOLD GDX, HUI Stocks - Will Paradise Turn into a Dystopia? - 11th May 21
4.Crypto Bubble Bursts! Nicehash Suspends Coinbase Withdrawals, Bitcoin, Ethereum Bear Market Begins - 16th May 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.Cathy Wood Ark Invest Funds Bubble BURSTS! ARKK, ARKG, Tesla Entering Severe Bear Market - 13th May 21
7.Stock Market - Should You Be In Cash Right Now? - 17th May 21
8.Gold to Benefit from Mounting US Debt Pile - 14th May 21
9.Coronavius Covid-19 in Italy in August 2019! - 13th May 21
10.How to Invest in HIGH RISK Tech Stocks for 2021 and Beyond - Part 2 of 2 - 18th May 21
Last 7 days
Investing in the Tulip Crypto Mania 2021 - 19th Jun 21
Here’s Why Historic US Housing Market Boom Can Continue - 19th Jun 21
Cryptos: What the "Bizarre" World of Non-Fungible Tokens May Be Signaling - 19th Jun 21
Hyperinflationary Expectations: Reflections on Cryptocurrency and the Markets - 19th Jun 21
Gold Prices Investors beat Central Banks and Jewelry, as having the most Impact - 18th Jun 21
Has the Dust Settled After Fed Day? Not Just Yet - 18th Jun 21
Gold Asks: Will the Economic Boom Continue? - 18th Jun 21
STABLE COINS PONZI Crypto SCAM WARNING! Iron Titan CRASH to ZERO! Exit USDT While You Can! - 18th Jun 21
FOMC Surprise Takeaways - 18th Jun 21
Youtube Upload Stuck at 0% QUICK FIXES Solutions Tutorial - 18th Jun 21
AI Stock Buying Levels, Ratings, Valuations Video - 18th Jun 21
AI Stock Buying Levels, Ratings, Valuations and Trend Analysis into Market Correction - 17th Jun 21
Stocks, Gold, Silver Markets Inflation Tipping Point - 17th Jun 21
Letting Yourself Relax with Activities That You Might Not Have Considered - 17th Jun 21
RAMPANT MONEY PRINTING INFLATION BIG PICTURE! - 16th Jun 21
The Federal Reserve and Inflation - 16th Jun 21
Inflation Soars 5%! Will Gold Skyrocket? - 16th Jun 21
Stock Market Sentiment Speaks: Inflation Is For Fools - 16th Jun 21
Four News Events That Could Drive Gold Bullion Demand - 16th Jun 21
5 ways that crypto is changing the face of online casinos - 16th Jun 21
Transitory Inflation Debate - 15th Jun 21
USDX: The Cleanest Shirt Among the Dirty Laundry - 15th Jun 21
Inflation and Stock Market SPX Record Highs. PPI, FOMC Meeting in Focus - 15th Jun 21
Stock Market SPX 4310 Right Around the Corner! - 15th Jun 21
AI Stocks Strength vs Weakness - Why Selling Google or Facebook is a Big Mistake! - 14th Jun 21
The Bitcoin Crime Wave Hits - 14th Jun 21
Gold Time for Consolidation and Lower Volatility - 14th Jun 21
More Banks & Investors Are NOT Believing Fed Propaganda - 14th Jun 21
Market Inflation Bets – Squaring or Not - 14th Jun 21
Is Gold Really an Inflation Hedge? - 14th Jun 21
The FED Holds the Market. How Long Will It Last? - 14th Jun 21
Coinbase vs Binance for Bitcoin, Ethereum Crypto Trading & Investing During Bear Market 2021 - 11th Jun 21
Gold Price $4000 – Insurance, A Hedge, An Investment - 11th Jun 21
What Drives Gold Prices? (Don't Say "the Fed!") - 11th Jun 21
Why You Need to Buy and Hold Gold Now - 11th Jun 21
Big Pharma Is Back! Biotech Skyrockets On Biogen’s New Alzheimer Drug Approval - 11th Jun 21
Top 5 AI Tech Stocks Trend Analysis, Buying Levels, Ratings and Valuations - 10th Jun 21
Gold’s Inflation Utility - 10th Jun 21
The Fuel Of The Future That’s 9 Times More Efficient Than Lithium - 10th Jun 21
Challenges facing the law industry in 2021 - 10th Jun 21
SELL USDT Tether Before Ponzi Scheme Implodes Triggering 90% Bitcoin CRASH in Cryptos Lehman Bros - 9th Jun 21
Stock Market Sentiment Speaks: Prepare For Volatility - 9th Jun 21
Gold Mining Stocks: Which Door Will Investors Choose? - 9th Jun 21
Fed ‘Taper’ Talk Is Back: Will a Tantrum Follow? - 9th Jun 21
Scientists Discover New Renewable Fuel 3 Times More Powerful Than Gasoline - 9th Jun 21
How do I Choose an Online Trading Broker? - 9th Jun 21
Fed’s Tools are Broken - 8th Jun 21
Stock Market Approaching an Intermediate peak! - 8th Jun 21
Could This Household Chemical Become The Superfuel Of The Future? - 8th Jun 21
The Return of Inflation. Can Gold Withstand the Dark Side? - 7th Jun 21
Why "Trouble is Brewing" for the U.S. Housing Market - 7th Jun 21
Stock Market Volatility Crash Course (VIX vs VVIX) – Learn How to Profit From Volatility - 7th Jun 21
Computer Vision Is Like Investing in the Internet in the ‘90s - 7th Jun 21
MAPLINS - Sheffield Down Memory Lane, Before the Shop Closed its Doors for the Last Time - 7th Jun 21
Wire Brush vs Block Paving Driveway Weeds - How Much Work, Nest Way to Kill Weeds? - 7th Jun 21
When Markets Get Scared and Reverse - 7th Jun 21
Is A New Superfuel About To Take Over Energy Markets? - 7th Jun 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Gold Price Steep Drop towards Long-term $900 Target Area

Commodities / Gold and Silver 2015 Mar 09, 2015 - 07:50 AM GMT

By: Clive_Maund

Commodities

Gold did almost exactly what we expected in the last update, it bounced from oversold off the support at $1190 - $1200, only to break sharply to new lows on Friday, crushed by the strength of the dollar. We got with the plot and are doing fine with bear ETFs, one of which rose by 25% on Friday alone. The dollar is remarkably strong especially given that its COTs and sentiment readings are already bearish by normal standards, so what is going on? - and where is the dollar headed?

The dollar is so strong because the world economy is about to finally disappear into the deflationary vortex, which our illustrious leaders have been fighting tooth and nail for so long now, which they should as they got us all into this mess in the first place.


The game's over - everyone and everything is maxed out on credit with extend and pretend having been taken to its ultimate conclusion. The misallocated capital from the worldwide orgy of QE has powered an immense carry trade that has driven asset prices to incredible extremes, and the only thing that has kept the game going is very low interest rates, and in the case of the US stockmarket by buybacks by management intent on running up the prices of their stock options, but the situation is now so desperate that rates are at 0 and even running negative in some places. Central Banks are stuffing QE into the gullet of the world economy like they are force feeding a goose, but still they can't stop the forces of deflation, which are gathering in strength and now closing in for the kill.

The continuing unwind of the global carry trade is what is driving the dollar higher and higher, and the higher it goes, the more it encourages money to abandon developing markets and return home to the dollar, a classic vicious circle. Where is the dollar index going to end up as a result of this? - an educated guess is the 120 area. For starters have a look at the long-term dollar index chart below which shows a projected target...

US Dollar Index 20-Year Chart

If this is what is going to happen to the dollar, then what does it mean for investors, in the simplest terms? It means that cash (the dollar) is King, for a while anyway, and just about everything else is going to collapse, including gold silver and oil, as in 2008 only much worse, because the ammunition that was available then to mount the great extend and pretend campaign ever since has been exhausted. These days, however, we can do a lot better than simply scurry to the safety of the dollar, like scared rabbits. You don't have to get out of your depth selling short or buying Puts, if you don't want to, you can simply buy bear ETFs in just the same way as you buy stocks, and by selecting either leveraged or unleveraged ones, you can choose the level of risk that you are comfortable with.

The 6-month chart for the dollar index shows that is on its way again, having broken out upside from a bull Pennant just over a week ago. The near-term target for this move, on an equal move basis, is about 102 and it could easily exceed this as it is a minimum objective.

=US Dollar ndex 6-Month Chart

Let's now review the chart. On gold's 6-month chart we can see how it stalled for time at the support at $1190 - $1200 for a couple of weeks, which allowed its oversold condition to unwind a little, but then broke sharply lower on Friday in response to extraordinary dollar strength. It's next port of call should be the support at $1130 - $1140 at its lows of last November, which are expected to fail in due course too.

Gold 6-Month Chart

On its 8-year chart gold continues to look weak and like it is setting up for another steep drop at least to its strong support in the $1000 area and possibly lower to the lower boundary of the downtrend channel shown, which would put it somewhere in the $850 - $900 price zone. This would hardly be surprising if the dollar index continues to rally hard towards our price objective in the 120 area. We had concluded in the last update that a giant 3-wave reaction is unfolding in gold, with the C-wave expected to unfold in a similar manner to the A wave which occurred early in 2013, and nothing has happened since to change this outlook, except that it looks even more likely after last Friday's support failure and sharp drop. On the positive side this C-wave should mark the end of gold's bearmarket, although here we should note that if the deflationary collapse is really bad, gold could temporarily go even lower than our downside target detailed here. We will be watching closely to see how it pans out when we get there, as it should present an exceptional buying opportunity.

Gold 8-Year Chart

On gold's latest COT chart we see that Commercial short and Large Spec long positions have moderated, but not by enough to prevent further serious losses...

Gold COT

The Gold Hedgers chart is in middling ground and doesn't provide much guidance one way or the other...

Gold Hedgers Position Chart
Chart courtesy of www.sentimentrader.com

The latest Gold Optix chart is fairly bullish, but not enough to spare gold from another drop, and on any such drop it should of course improve significantly.

Gold Optix Chart
Chart courtesy of www.sentimentrader.com

The latest 8-year chart for the HUI index still looks pretty awful, with a severe downtrend in force and its moving averages in bearish alignment. Since it is not now oversold on its MACD indicator shown at the bottom of the chart, it could easily break to new lows and plunge from here, which looks likely given the outlook for gold. The first step towards its negating this bearish scenario will be for it to break out upside from the downtrend channel shown.

Gold Bugs Index 8-Year Chart

The latest chart for the Gold Miners Bullish Percent Index shows that investors haven't thrown in the towel yet on PM sector stocks. They are still too bullish by recent standards, which is not a good sign.

Gold Miners Bullish percent 8-Year Chart

It is vitally important that no matter how much you love gold or silver, you maintain a detached and objective attitude to it, if you are to avoid losses and maximize gains. All investing is an opportunity cost game, and to the pure speculator it doesn't matter if something is rising or falling in price as long as he is on the right side of the trade. It is in this spirit that we bought a range of bear ETFs in the Precious Metals sector early last week, including this one, which rose in price by over 22% on Friday's sector breakdown...

Direxion Gold Miners Bear 3X Daily Chart

What we would like to do with this is ditch it for a handsome profit at the bottom and reverse position to long. The challenge will be to recognize the bottom.

Finally we should not underestimate the sheer pleasure of ownership that gold bestows. Take Mr Bond in the picture below, for instance. He knows he should have sold this girl in 2011 but he just couldn't bring himself to - and who can blame him? - but he could have hedged of course. Who knows, perhaps he did.

By Clive Maund
CliveMaund.com

For billing & subscription questions: subscriptions@clivemaund.com

© 2015 Clive Maund - The above represents the opinion and analysis of Mr. Maund, based on data available to him, at the time of writing. Mr. Maunds opinions are his own, and are not a recommendation or an offer to buy or sell securities. No responsibility can be accepted for losses that may result as a consequence of trading on the basis of this analysis.

Mr. Maund is an independent analyst who receives no compensation of any kind from any groups, individuals or corporations mentioned in his reports. As trading and investing in any financial markets may involve serious risk of loss, Mr. Maund recommends that you consult with a qualified investment advisor, one licensed by appropriate regulatory agencies in your legal jurisdiction and do your own due diligence and research when making any kind of a transaction with financial ramifications.

Clive Maund Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in