Originally published November 9, 2015.
1. Market Update
Two weeks ago I changed my mind and warned of an immediate sell off in Gold and precious metals. Three days later Gold quickly touched $1,182 only to tumble down after the FED statement. Luckily, my recommendation to sell short any strength towards $1,175-$1,180 has now brought us in the comfortable situation to ride a winning trade home.
Gold's bear market is still not finished but very close to an end. Actually, it could happen within a matter of days or weeks. All that is missing is the final move down towards $1,035 - $980. I have been writing about it many many times. But honestly on the way down Gold managed to create a lot of confusion within this bear market so that I was often very close to neglect this main scenario. The $1,000 level is a very important psychological number and therefore since many years the big elephant in the room. Once we get there Gold should return like a phoenix out of the ashes.
Deflation remains the name of the game for 2015. The epic credit bubble in China driven by massive corruption and megalomania is still underrated. I recommend to read this eye opening article "China And The New World Disorder". The most important conclusion is that "if China catches a cold, the rest of the world won't be sneezing - it will be headed for the emergency room".
Therefore the FED can not raise interest rates because it would bring a gigantic collapse in China. While the Goldbugs rant against the "irresponsible" central bankers, their liquidity measures remain the only medicine to keep our current system alive. But whether they will manage to bring back artificial growth is yet to be seen. Ultimately the loss in confidence should push the Gold-price much higher but in a deflationary spiral everything goes down first. That's exactly what we are seeing in commodities and now probably in the stock markets too. India theoretically has the potential to replace China but it's bureaucracy and the absurd caste system remain a huge hurdle.
At the same time the price of Bitcoins is exploding mainly driven by huge volume in China. Looks like the Chinese people choose Bitcoins to avoid capital controls and reallocate their savings into this fascinating crypto currency.
On top a few days ago I came across the following very interesting statement: "The digital disruption has already happened! The world's largest taxi company owns no taxis (Uber), the world's largest accommodation provider owns no real estate (Airbnb), the world's largest phone companies own no telco infra (Skype, WeChat), the world's most valuable retailer has no inventory (Alibaba), the most popular media owner creates no content (Facebook), the fastest growing banks have no actual money (SocietyOne), the world's largest movie house owns no cinemas (Netflix) and the largest software vendors don't write the apps (Apple & Google)." Welcome to the cloud!
To say that we are living in interesting yet challenging times is an understatement. Never before has mankind lived & progressed at such a pace. Would it be unthinkable that in just a few years Bitcoin can become the new world currency run by the "cloud" without any government? Even though it might seem frightening I think it would make the world a better place.
Gold needs a daily close above $1,120 to reverse the downtrend on the point & figure chart.
The GDX is holding up better than Gold.
Although it is still too early to draw profound conclusions I do like the behavior. At the bottom you want to see the miners diverging.
2. The Midas Touch Gold Model
Compared to last week we have the following changes: New sell signals on the Gold USD-Weekly Chart and from the rising Gold Volatility CBOE Index. The Gold CoT-Report now is neutral due to commercial short covering. Gold Seasonality now is turning green. A new sell signal comes from the DowJones/Gold Ratio and as well from the SPDR Gold Trust who lost a whopping 26.45 tonnes in the last two weeks.
Overall the model is in Strong Sell/Bearish Mode since 6 trading days.
3. Gold Daily Chart
Gold has crashed through every support and is now sitting clearly below $1,100 licking its wounds. So far price action is not indicative of a major low or even an intermediate bottom. Gold has not even managed to get a dead cat bounce going. Already a close above $1,105 will be difficult because the Slow Stochastic is bearish embedded and therefore locking in the downtrend. But Gold is oversold and will probably need to spend some more days consolidating between $1,080 and $1,100. Only a daily close above $1,105 will open up the chance for a recovery towards $1,130 and maybe higher.
Either with another recovery or directly from here, Gold is headed towards $1,035 - $980 and remains a sell on any short-term rallies.
Swing-traders hopefully followed my recommendation to sell Gold short between $1,175 - $ 1,180 and should now move their stops at least towards $1,120. You might be able to ride this trade down to $1,025 where you should cover everything. As well I recommend to place a multiple scale in "Gold long" order between $1,035 and $980. E.g. 1/4 @ $1,035, 1/4 @ $1,020, 1/4 @ $1,005 and 1/4 @ $985.
Investors should now be very alert as we are approaching another great buying opportunity below $1,050. If Gold goes below this number buy with both hands until you have 10% of your net worth in physical Gold and Silver.
5. Long-term personal beliefs (my bias)
Gold is in a bear market and headed towards $1,035 - $980. Once this bear is over a new bull-market should start and push Gold towards $1,500 within 2-3 years.
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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