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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…

Strong U.S. Dollar Weighs On Blue Chip Earnings

Strong U.S. Dollar Weighs On Blue Chip Earnings

Earnings season is well underway,…

Florian Grummes

Florian Grummes

Florian Grummes is studying and trading the Gold market since 2003. Parallel to his trading business he is also a very creative & successful composer,…

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Update

Gold is breaking out of its triangle formation and a first target at $1,237 is activated. The whole precious metals sector presents itself pretty bullish.

It's still to early to call the end of the bear market but the picture continues to improve. Now Silver and Mining Stocks leading the sector higher which is exactly what you want to see in a new up trend.

Buy the dips!!

Daily Palladium Chart

Palladium is leading the commodity sector higher. After a dramatic sellout end of august the metal has posted an impressive V-shaped recovery which is easy to spot on the chart.

I want to direct your attention to the powerful Slow Stochastic Oscillator. This indicator measures the momentum of a move and usually signals a trend change pretty early. Note that momentum always changes direction before price. But currently Palladium has an embedded stochastic! With both signal lines above 80 the up trend is locked in. Short-term traders can use this rare situation to ride the current trend and use any drop through 80 as an exit signal. Obviously the 200MA is strong resistance. It will be interesting to observe whether the embedded Stochastic can carry Palladium higher or whether its time for a breather here (more likely). A drop below 80 will signal a consolidation or (worst case) a correction back to the 50MA (US$616.19).

Midas Touch Gold Model
Larger Image


Midas Touch Gold Model Summary

Despite the price drop 10 days ago my model remained bullish. Compared to last week we have the following changes:

New buy signals coming from the Gold USD-Daily Chart, the SPDR Gold Trust, Gold in Chinese Yuan and GDX Gold miners.

A new sell signal will appear for Gold Seasonality in mid of October. Also the Ratio Gold/Commodities has turned negative which means Gold currently is not driven by safe haven buying. Instead negative US Real Interest Rates will continue to be the main driver for Gold at the moment.

Overall the model is in Strong Buy/Bull mode.

Daily Gold Chart


Gold Daily Chart

Slowly but surely Gold has been breaking out of the triangle. Yet it did not take out the highs from August at $1,170. Overall the setup is very bullish. The only concern is again the overbought stochastic indicator. Two weeks ago this indicator forced Gold to quickly dip down to $1,104. Now the momentum is overbought again. It needs to embed to push Gold higher (e.g. the palladium chart..). The target out of the triangle formation is $1,237 and could be reached pretty soon. On the way to this number the 200MA ($1,176) is resistance and could lead to a multi-day consolidation. I remain bullish as long as Gold stays above the rising 50MA ($1,123) and especially above $1,115/$1,105. Last week of October should start a correction and bring a chance to buy a "November" dip with a reasonable risk/reward ratio.


Recommendations:

Swing-traders (if not already long) should wait for any dip towards the apex of the triangle (ca. $1,145). Do not chase these higher prices as long as the stochastic is not embedded. Another potential buying point would be the 50MA ($1,123). But if Gold reacts back to this level the bullish triangle would be destroyed. Definitely continue to hold GDX and GDXJ and trail your 25% stop-loss.

Investors should be patient and wait for renewed weakness in November.


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. A new bull market will probably begin in autumn 2015 and could last for 3-8 years or even longer.

Right now it's not 100% clear whether the bear market is indeed over or whether we are just witnessing another multi month recovery. But it looks more and more evident that the bottom is in.

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 5-10 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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