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Gold and Silver

Update 21th April 2013

Update

Gold Monthly Chart

Gold Daily Chart


Arguments for lower prices:

  • Gold breaking down from huge descending triangle and out of 2 year sideways zone. The old support between US$1,520.00 and US$1,540.00 is massive resistance. It will take much more time to regain this level.
  • Gold's possible downside targets:
    • Fibonacci Retracements (from last low at US$680.00 up to last top at US$1,920.00) = 50,0% @ US$1,300.00 and 61,8% @ US$1,153.00
    • Descending triangle (measuring the widest distance of the pattern and subtracting it from the support breakdown = US$1,920.00 minus US$1,535.00 = US$385.00) @ US$1,150.00
    • Sideways Zone breakdown (subtracting sideways range from the support breakdown e.g. US$1,795.00 minus US$1,525.00 = US$270.00) @ US$1,255.00
    • Support at old parabolic highs at US$1,250.00 and US$1,050.00
    • Long term uptrend support @ US$1,050.00 and US$750.00
  • Mining stocks have signaled breakdown for a long time already and still do not show any signs of a trend change
  • Movement out of Gold ETFs might just have started
  • Seasonality for precious metals now until end of July unfavorable
  • In spite of the huge sell off in precious metals COT-Data rather unchanged... (very strange!!!!!???)
  • The strong physical demand by small investors and the rising premiums during the last couple of days could also be a contrary indicator (e.g. in september 2008 we saw similar developments but final low was marked in november 2008)
  • Dr. Copper signaling a weakening global economy as Copper plunged to a 18 month low.
  • Possible sharp correction ahead for Crude Oil... a rather large Head & Shoulder pattern is in development.
  • By devaluing its own currency Japan is exporting deflation to U.S. and Europe
  • Europe sinks even deeper into recession


Arguments for higher prices:

  • Gold on all time frames strongly oversold.
  • Sentiment extremely negative
  • Massive physical demand all over the world. Premiums for physical bullion are much higher. In Hong Kong the Chinese Gold & Silver Exchange Society is out of supply and waiting for deliveries from Switzerland & London. US-Mint sold more 63.500 oz Gold in just one day. In Germany many dealers are out of stock. 10 Buyers for 1 Seller.
  • Russia again increased its Gold reserves.
  • U.S. and european central bankers want to avoid deflation and will soon start to pump more liquidity into the system again

Conclusion

  • The buy recommendation in my last update @ US$1,541.00 was good for a US$50.00 bounce in Gold. If you opened a trading position you should have made at least a small profit. If not, you did not use good money management (e.g. trailing stops). If you bought physical gold, you still own the exact same amount of ounces. Nevertheless, my preferred scenario did not work out.
  • In my update from March 10th I defined my worst case scenario: "3rd scenario: Gold is indeed in a bear market and will break through US$1,530.00 soon. As there might be lots of stops waiting to be triggered and as it would be the fourth test of this zone it is very likely that US$1,530.00 will not hold. Technically this would be a huge sell signal and Gold could crash down to US$1,250.00 and US$1,050.00 very fast. This would be similar to the 1970s bull market. Actually you just have to multiply the numbers by 10 and end up in today's game. In the 70ies Gold went from US$35.00 to US$195.00. From there it lost nearly 50% in two years and went down to US$105.00. Finally between 1976 and 1980 Gold went up to US$890.00. By early 1976 most of the gold bulls had been killed and were missing out the final flight to the moon. Imagine if today Gold continues to go down while the stock market is breaking out to new highs! At US$1,250.00 and US$1,050.00 everybody will have sold his gold. To whom? Yes, to the smart money and the banksters. By this, the pressure in the Gold market will be so high that Gold could easily jumped to US$8.000,00 within a couple of years."
  • As we all know, Gold broke through the 2 year support zone and crashed down to mark a short term low @ US$1,320.00. Since then, Gold has recovered more than US$85.00.
  • Scenario 3 is therefore confirmed and Gold should head even lower in the coming months. We might see a rebound towards broken support around US$1,500.00 - 1,540.00 first. But given the weakening economic situation and the looming deflationary forces we might not get there... US$1.425.00 and US$1.455,00 will be strong resistance already.
  • After the current recovery I expect US$1,250.00 to be tested in the coming months. If US$1.250.00 breaks we should be going down to even US$1,150.00 and US$1.050.00. Here we will be offered the biggest opportunity ever since I believe the bull market in precious metals is not over. I continue to believe that Gold will move to around US$8,000.00 after this correction is over.


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 autumn 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 or repatriating 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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