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Gold and Silver Update

1. Market Update

After a nasty and brutal sell-off starting mid of October Gold has been consolidating between $1,064 and $1,095 over the last two weeks. Although we are very close to the potential bottom zone around $980 - $1,035 Gold could still continue to consolidate or even start a recovery. The extreme pessimism and the constructive CoT-Data do support a bounce but it looks like nobody wants to catch a falling knife here.

So the long expected final move could indeed happen any time and within just a couple of days. Price-wise I don't see much more downside risk (max 8.5%) but time-wise we could still be in for another round of recovery before the bears finally manage to push prices down towards $1,000.

Baltic Dry Index Monthly Chart

While commodity prices are still in a massive downtrend, the US-Dollar continues to push higher. At the same time the yield curve is flattening and negative real interest rates are more and more obvious. Yet the Baltic Dry Index (as a representative for global trade) is sitting at 12 year lows while the weak oil price is killing the fracking business. The astronomic world wide debt levels will never be paid back and central banks will continue to flood the markets with liquidity just to keep this craziness going. This will only lead to even more distortion and will diminish accurate price signals. Deflation remains the name of the game and what we are witnessing is very likely the final stage of a decades long fiat money experiment. I believe we have to stay away from any risk in these markets and prefer to be in cash even though it might mean to lose purchasing power. My favorite asset classes remain Gold and Bitcoin.

Gold because it represents a 5000-year old track record and freedom from 3rd party risk. Bitcoin because it is traded in a free market and represents the technology of the 21st century. Besides that real estate with a positive cash flow and agriculture are two more asset classes I do like. Stocks in general are probably overvalued and many of them are already in a bear market.

Gold Point and Figure Chart

Gold needs a daily close above $1,100 to reverse the downtrend on the point & figure chart.

GDX:GLD Daily Chart

The GDX continues to hold up better than GLD.

At the final bottom you want to see the miners ETF positively diverging from the physical Gold ETF.

2. The Midas Touch Gold Model

Midas Touch Gold Model

Compared to last week we have the following changes: New buy signals on the Gold USD-Daily Chart, Gold Volatility CBOE Index, Gold CoT-Report, Gold Sentiment, Gold in Indian Rupee, GDX Gold miners Daily Chart and US Real Interest Rate. New sell signals are coming from SPDR Gold Trust which continues to lose its holdings and from the US-Dollar-Daily Chart. Gold Seasonality remains supportive until second week of December.

Overall the model is in Neutral/Sideways-Mode since 5 trading days.

3. Gold Daily Chart

Daily Gold Chart

Gold continues to behave pretty weak. Although $1,064 so far has stopped the sell-off there is no indication of a major low or even an intermediate bottom. The only bounce towards $1,095 was quick, very short-lived and failed already below $1,105. Only a daily close above $1,105 will open up the chance for a recovery towards $1,130 and maybe higher.

As long as the slow stochastic remains bearishly embedded the downtrend will continue. Once $1,064 is taken out Gold should quickly drop towards my ultimate target zone between $980 - $1,035. Here I do expect at least a huge recovery but more likely the end of the bear market.

Overall we are getting very close to a huge opportunity in the gold market on the long side!! Remain patient but alert and do your homework to be ready once we are hitting $1,025.

4. Recommendations:

Swing-traders hopefully followed my recommendation to sell Gold short between $1,175 - $ 1,180 and should now move their stops to $1,095. You might be able to ride this winning 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 ((depending on how much money will be printed..).

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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