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Gold and Silver

Update 16th December 2012


1. Personal Note

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2. Update

Gold Weekly Chart

Gold Daily Chart


Arguments for lower prices:

  • Gold failed to take out resistance at US$1,730.00 and US$1,725.00
  • Gold making lower highs
  • Gold still below 50-MA (US$1,725.12)
  • Correction still not finished. In case of ABC if length of A wave = length of C wave Gold should bottom around US$1,635.00 ...
  • Gold overall still in sideways movement (between US$1,525.00 and US$1,795.00) since September 2011
  • Latest COT Data for silver continues to be bearish
  • Mining Stocks continue to perform weak, HUI index below 200-MA & 50-MA
  • Recession in europe, slower demand from China and India


Arguments for higher prices:

  • Gold still oscillating around important psychological number at US$1,700.00, but bears can not make any progress
  • Gold is making higher lows and moving inside triangle consolidation pattern
  • Gold still testing uptrend since august 2012 and uptrend from 2008
  • Lower Bollinger Band (US$1,685.33) offers strong support
  • Gold still clearly above 200-MA (US$1,663.48)
  • Strong physical demand from ETFs and central banks (e.g. South Korea)
  • Besides obvious short selling during thinly traded overnight markets Gold has held up extremely well
  • Silver now clearly oversold.
  • COT-Data for Gold is slightly positive. Commercials currently are short -215k. I reviewed some of my older reports from 2009-2011. During this time a commercial short position around -150k was a great entry, while a position around -200k still was bullish. A commercial short position above -300k instead was really dangerous and always followed by corrections. During 2010 commercial shorts never dropped below -200k and -227k was already great entry. So I don't think we have to be afraid of COT Data at the moment.
  • Longer term Gold in similar correction pattern like 2008/2009. Breakout to US$2,000.00 expected to happen in summer 2013
  • New uptrend in precious metals since August 2012 that should carry gold up to US$1,850.00 and 1,900.00 until spring 2013.
  • US-Dollar Death Cross (long-term 200-MA broke above its short-term 50-MA in mid of october) plus potential Head & Shoulder-Pattern continue to push US-Dollar lower
  • Seasonality during the next two months extremely positive for precious metals sector
  • 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 oscillating around US$1,700.00 for 8 weeks and managed to hold important support at US$1,696.00. Many have given up on gold due to this price action. I personally think that we are now very close to the breakout. This triangle consolidation will be finished if Gold closes above US$1,725.00. From there Gold will move to US$1,800.00 pretty fast.
  • If instead Gold is closing below US$1,696.00 a retest of US$1,670.00 and 200-MA is in the cards. Even a break lower to US$1,640.00 - US$1,635.00 would become possible. But this bearish scenario is very unlikely in my humble opinion.
  • Instead I continue to believe that Gold will move up to US$1,850.00 and around 1,900.00US$ until spring 2013.


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 Dow Jones/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.

 

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