After two weeks of moving and filling around the US$1,200 level Gold finally broke down on Friday. I had anticipated the sideways trap since early April and explained my bearish outlook in my recent analysis as well. Last Monday I told my german readers that I see an increased probability that Gold is starting to crash down towards $1,035 in the coming weeks. Actually I had lay out this scenario for a long time already. I feel like we are there now.
Closing last week just below the former support level at $1,180 Gold now is standing right at that cliff.... The next support is $1,140, below that number the door is open towards the $1,050's... Doesn't look good in the short-term but should we get the necessary final sell-off down to $1,035 the bear market will be over very soon! That is more than exiting because the precious metal sector is so beaten down that once this bear market is over Gold, Silver and the mining stocks should return as a Phoenix from the ashes.
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Midas Touch Gold Model Summary
Last weekend the model went to a neutral state. This week the model moved back into a Sell/Bearish Mode. Compared to last week Volatility has been rising. As well Seasonality is now negative. Another bearish development was the sell signal in the Gold/Silver-Ratio as well as the fact that Gold now is down against all four major currencies over the last month. On the positive site we have a new buy signal for Gold in Indian Rupee. Another buy signal came in on Friday due to the weak US-Dollar Daily Chart which could give some support for Gold.
Today I decided to include another technical signal: Gold in Chinese Yuan. Without a doubt China plays an extremely important role in today's gold market. I am still evaluating what kind of fundamental data I could easily convert and build into my quantitative mechanical approach. Any ideas are welcome! For now I think the chosen technical signal based on the parabolic sar indicator will give us a very good idea at least for the price trend in china.
All in all the model has worked pretty well and avoided the sideways trap during the last three weeks. It is now pointing towards the typical sell off in May/June.
Gold Daily Chart
Fasten your seat belts... Gold looks tired and weak, still moving in a corrective pattern. It needs this final washout for a new beginning. The falling 50-MA ($1,192) has been lost on Friday. It now could start sliding down along the Bollinger-Band ($1,180) towards the next zone of support around $1,140. Here a recovery lasting a couple of days would be no surprise. But as this would be already the third test of this support, expect a fourth one soon to follow which will crash through $1,140/$1,130...
I don't see a high probability for any recovery as sentiment and CoT are not at extreme levels. Only the slow stochastic indicator is oversold. But this same indicator on the silver chart is already bearish embedded after moving 3 days below 20. Should the bulls regain the 50-MA ($1,192) they might be able to push prices even towards the 200-MA ($1,228).
Traders who are not yet short should wait for a better risk/reward setup or could sell Gold short into any recovery towards $1,185 with a stop above $1,210 (please be aware that this is not an ideal set-up).
The most promising strategy although remains to simply wait until end of May or mid of June for the typical pre-summer bottom in Gold and the Gold stocks.
As an investors I suggest you wait for another chance to accumulate physical Gold below $1,150 until you hold 10-20% of your net-worth in physical Gold and Silver as an insurance .
Long-term personal view
The return of the precious metals secular bull market is moving step by step closer and should lead to the final parabolic phase (could start in summer 2015 or 2016 and last for 2-5 years or even longer).
Before this can start Gold will need a final sell off down to $1,050-$980.
Long-term price target DowJones/Gold-Ratio remains around 1:1.
Long-term price target Gold/Silver-Ratio remains around 10:1 (for every ounce of gold there are 9 ounces of silver mined, historically the ratio was at 15:1 during the roman empire).
Long-term price target for Gold remains at US$5,000 to US$8,900 per ounce within the next 5-8 years.
Fundamentally, as soon as the current bear market is over Gold should start the final 3rd phase of this long-term secular bull market. 1st stage saw the miners closing their hedge books, the 2nd stage continuously presented us news about institutions and central banks buying or repatriating gold. The coming 3rd and finally parabolic stage will end in the distribution to small inexperienced new traders & investors who will be subject to blind greed and frenzied panic.