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Gold and Silver Update

1. Gold & Silver Update

Gold's price action over the last two weeks has been pretty weak. The 50MA (US$1,196) has been lost and it looks like Gold wants to break lower. Yet it did not close below $1,170 and bulls are starting a recovery since the lows from last Friday @$1,162.

Although I have been writing about the final capitulation in Gold for nearly a year I don't feel like we are there now. I don't see a constellation where Gold could sell off $100+. Instead CoT and sentiment are giving contrarian buy signals...

200-Years of Dow/Gold Ratio

The DowJones/Gold-Ratio still supports the ongoing bull market in stocks and the 4-year old bear in Gold. This ratio could climb all the way up to about 20 before we see an overall trend change.


2. The Midas Touch Gold Model

Midas Touch Gold Model
Larger Image

During the last 10 weeks my model has been hovering between neutral and bearish. According to the latest data we have the following changes: New sell signals for Gold in USD-Daily Chart, Gold in Indian Rupee-Daily Chart, Gold in Chinese Yuan-Daily Chart, GDX Goldmines-Daily Chart and for US Real Interest Rates as they have gone up to 0.71%(=+22%).

New Buy signals appeared for Gold CoT-Report and Sentiment. Both are contrarian buy signals which could mean that the immediate downside for Gold is limited. Another new Buy signal comes from the US-Dollar-Daily Chart. Here the US-Dollar-Daily Chart is in sell mode which translates into a buy signal for Gold.

In summary my model is slightly in bear mode but could change to neutral again very fast.


3. Gold Daily Chart

Daily Gold Chart

With Friday's low at $1,162 Gold is down 70$ from its mid-May highs at $1,232. The bears are undoubtedly in charge. Due to extremely pessimistic sentiment, a relatively low commercial short position in Gold-Futures, very oversold stochastic and soon to be improving seasonality I think we might now see a surprising recovery and therefore a bear-trap. But overall that recovery should only lead to a "fully staffed pain-train" again which will then be able to take Gold down and below $1,170.

Overall this 4-year old bear market is not over yet - at least we are missing the clear confirmation for its end. The grinding sideways action in the last couple of months certainly is not looking like a hungry new bull.

If you don't need to be active in this market I continue to suggest that you'd be better staying at the sidelines and avoid any short-term trading. A new low-risk/high-reward trading opportunity could present itself later this summer if Gold indeed can post a rally in the coming weeks towards $1,210.

As an investor I suggest you to 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.


4. Long-term personal beliefs

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. My long-term price target for the DowJones/Gold-Ratio remains around 1:1. and 10:1 for the Gold/Silver-Ratio. A possible long-term price target for Gold remains around 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.

 


If you like to get regular updates on this model and gold you can subscribe to my free newsletter here: http://bit.ly/1EUdt2K

 

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