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Market Sentiment At Its Lowest In 10 Months

Market Sentiment At Its Lowest In 10 Months

Stocks sold off last week…

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Strong U.S. Dollar Weighs On Blue Chip Earnings

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Gold and Silver Update

1. Gold & Silver Update

Since my last update Gold posted a recovery. So far it's not very spectacular but it's holding above $1,115 as I am writing this. The Mining Stocks (GDX and GDXJ) really exploded higher from their bottom on the 5th of August. I don't think that Gold already made its final low. The recent price action simply is not encouraging enough. Looking back in history the bottom usually is a process lasting at least a couple weeks. Therefore Gold should come back below $1,100 soon or later and make one more lower low. As you know my target zone ranges between $1,035 and $980. Certainly the sentiment has been super bearish and Gold is a wonderful contrarian play here but the last weeks in any large movement (up & down) are usually characterized by extreme irrationality and exploding volatility. On top I think the market simply wants to see the $1,000 level - no matter whether this makes sense or not - it's pure psychology. Therefore I remain optimistic that we will see the final low within the next couple of weeks. If Gold instead continues to recover (signal is a daily close above $1,126/$1,130) the bear market will very likely extend into next year....

Gold versus GDX and GDXJ Daily Chart

During the last 15 days the Mining Stocks as well as Silver have been starting to outperform Gold. That is a positive sign and increases the probability that we have seen an important bottom in the sector. I personally believe that the miners have already bottomed while Gold still has unfinished business on the downside. It's up only 1.35% from the lows on July 24th. Not a very encouraging price action... The miners instead posted five strong up-days with impressive gains and are about to close the gap they had on the 12th of August.


2. The Midas Touch Gold Model

Midas Touch Gold Model
Larger Image

Last Wednesday, the 12th of August, my model went into a buy mode for the first time since mid of march. It is still a weak and slow buy signal but it is a buy signal. The change in the US-Dollar Daily Chart was the final trigger. But the trend in the US-Dollar is not really clear at the moment. This signal is changing back and forth showing no sustainability here. Besides that we have a new buy signal for Gold USD-Daily Chart, Gold in Indian Rupee, Gold in Chinese Yuan and the GDX Gold miners Daily Chart.

The SPDR Gold Trust on the other hand continues to loose its holdings. Overall the model is in Buy/Bull Mode.


3. Gold Daily Chart

Gold Daily Chart

My expectation of a more or less immediate continuation down to $1,035 has been wrong. Instead Gold posted a recovery towards $1,126, but failed to regain the "flash-crash" level above $1,130. Overall Gold is still in a bear market and below most of its downtrend lines and below the 50MA ($1,141) and the 200MA ($1,187). The stochastic is already overbought while the MACD has posted a new buy signal. The RSI has recovered to neutral levels. Generally all indicators do not stand in the way for another down-wave. To me the recent price action does not look like the start of a new bull market yet. Instead the market is doing everything to confuse everybody. Overall Gold is hanging in around $1,115 not being able to make any significant progress. A daily close below $1,106 will confirm the start of the final down wave. Traders should wait on the sideline here as there is no clear bullish setup while the more likely bear-side does not deliver any reasonable risk/reward ratio. Instead continue planning how to act once Gold goes below $1,050 to build a long-position which you can ride for at least a couple of months into a larger bounce/recovery/start of a new bull market. My recommendation for investors is to buy more physical Gold below $1,050 and below $1,000 (should we get there). The risk/reward is already outstanding but you need to bring at least 3-5 years of patience with you. I also do recommend to start buying Mining stocks on any pullback in the next couple of days/weeks. The preferred vehicle should be an ETF like GDX or GDXJ. Once the turnaround is getting more clear I might start publishing interesting stocks that have great fundamentals, an outstanding management and a very good technical setup. As you know mining stocks tend to rise only 20% of their time therefore I prefer buying into an up trend instead of catching a falling knife. One might miss the first 10-20% but you reduce the downside risk dramatically.

4. Long-term personal believes

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.

 


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