1. Market Update
What a difference two weeks can make....!!
Gold has clearly broken out of its falling wedge - earlier than anticipated. The stellar performance during the last two weeks has likely changed the big picture and probably marks the starting point of a new multi-year bull market. But short-term Gold and the mining stocks have become very overbought. The price action during the last two days is sending a warning signal and we are likely going to see a large pullback in spring. The situation reminds me of 2001 (chart) when Gold also shot through the roof only to retrace all the gains pretty quickly. Back then it corrected all the way back to its 50MA within a matter of days. Currently that would mean a test of the breakout level around $1,110 - $1,130. Be very careful here at the moment. I am very sure that the market will give us more opportunities to buy at much lower prices until summer. Just be patient.
The other emphasis of my analysis, Bitcoin, seems to follow my scenario of an ascending triangle while the general stock market and oil are ripe for a multi-week recovery.
2. Bitcoin within a multi-month bullish triangle consolidation
Bitcoin should continue to run into an ascending bullish triangle for at least a couple more weeks. I hope you followed my recommendation to buy below $380. Now you should be fully invested and just stick to your position. We have been buying weakness within a bullish formation. The breakout above $500 will confirm the pattern and activate our profit target at $800. I like to buy a quiet market with a great fundamental and technical picture instead of chasing an overbought and volatile market like gold is at the moment.
Action to take: Hold your Bitcoins
Stop Loss: $290 (28%), we will increase the stop once we hit $500.
Profit Target: $800
Timeframe 6 -18 months
Risk($80) / Reward($430) = 1 : 5.4 (very good ratio!!)
Position Sizing: Don't risk more than 1% of your equity.
3. The Midas Touch Gold Model on a Buy Signal since January 26th
The model remained in bullish mode during the last two weeks. Obviously due to Gold's strength the bullish mode has intensified. The recent changes include buy signals from:
Gold USD - Monthly Chart
US-Dollar Daily Chart
A new sell signal is coming from:
Gold Volatility CBOE Index
A neutral signal is coming from:
Overall a very strong bull signal. But be aware that it doesn't take much more downside action to flip the signals from Gold in Indian Rupee and Gold in Chinese Yuan to a sell signal. As well the available CoT numbers for Gold do not include last week's spike! I think we will quickly see my model shift to neutral mode but obviously that is my personal opinion. Until now the model is bullish and has been created to take out any personal interpretation.
4. Gold broke out of first falling wedge on the monthly chart
Mid- and long-term this bullish and the bottom is very likely in. But short-term Gold is about to fall back within the downtrend-channel of the last three years. Combined with the unsupportive seasonality until June I think we will see a large pullback starting rather soon.
5. Gold with spectacular and parabolic rise but close to a sell signal
With the daily chart we are zooming into the recent price action. Instead of pulling back around $1,140 Gold surprised nearly everybody (including me) and rushed to the upside. But looking forward to the next couple of weeks and months I am now very cautious and even outspoken bearish. To get more clarity about what Gold can do from here I am going to lay out the three basic directions any market can take: up, down and sideways.
1. The imminent bullish case: The ongoing pullback this morning confirms a short-term top at $1,263.90 is in place. But if Gold still wants to continue and push higher towards the next target around $1,300 the support zone between $1,190-$1,210 has to hold. As you can see in my model update Gold in Yuan and in Rupee can not fall much lower from here ($1,209) without triggering a sell signal. That means Gold has to stay above $1,205 (today's low so far is $1,207). So should we get a bounce from here Gold has to quickly regain $1,230 and especially $1,242 to keep the bullish picture alive. In that case we should see $1,300 rather soon. The probability for this scenario is only 15%.
2. The sideways consolidation case: Gold has become very overbought and needs at least a breather. As long as it stays above $1,205 and especially above $1,180 we could see a sideways consolidation. The slow stochastic could stay embedded in that case. The probability for this scenario is 25%.
3. The bearish case: Gold is extremely overbought. RSI and MACD are extremely overbought. Thursday and Friday's close have been outside the upper Bollinger Bands. The Parabolic Sar will flip to a sell signal below $1,181. Gold stocks are heavily overbought too. Such a first parabolic rise has always been corrected in the past! GDX & Co. usually have retraced 55% of their sharp advances in the past. Sentiment levels are way too optimistic. The Kitco Gold survey has seen three weeks in a row > 85% bulls. The general stock-market is oversold and ready for a bounce. Silver has been kind of lagging the current move. The Gold/Siver-Ratio has not confirmed the recent spike in precious metals. Seasonality is not supportive anymore. We often have seen dramatic sell-offs starting in February or March. I could continue on and on. The probability for the bearish scenario is at least 60% and I expect Gold to fall down all the way back to its 50MA because jumping above the 200MA for the first time since many months usually forces prices to correct at least back to the 200MA more likely down to the 50MA.
Conclusion: Gold mostly likely will start a severe pullback towards $1,130 rather soon. But overall the picture has improved and I expect we don't see prices below $1,100 anymore.
Action to take:
Nothing. Stay at the sidelines but plan to buy with both hands once Gold is pulling back towards its 200MA ($1,130) and especially towards its 50MA ($1,105).
Only experienced traders could sell Gold short into any intraday spike towards $1,228 - $1,241 with a tight stop at $1,255 and a profit target at $1,130.
Investors should continue to buy with both hands if Gold moves below $1,130 again until you have at least 10% of your net-worth in physical Gold and Silver.
6. Portfolio & Watch list
Portfolio: We bought Bitcoin at $372. Stop at $290. Profit target $800. Plan to hold for a couple of months.
Buy Gold at $1.130 with a stop at $1.100. Mostly likely we will have to wait until march for this trade to become possible.
Buy GDX (Market Vectors Gold Miners ETF) at and below $15.45 with a stop at $14.00
Buy GDXJ (Market Vector Junior Gold Miners ETF) at and below $21.15 with a stop at $19.00<
Watch list: DRD Gold (DRD)
Endeavour Silver Corp. (EDR.TO)
McEwen Mining (MUX.TO)
MAG Silver Corp. (MAG.TO)
United States Oil Fund (USO)
Agriculture ETF (DBA)
Track-Record: We got stopped out of our gold short position on January 4th at $1,083 for an outstanding gain of $97/contract or 8.2% (=8.08R).
7. Long-term personal beliefs (my bias)
Officially Gold is still in a bear market but the big picture has massively improved and the lows are very likely in. If Gold can take out $1,307 we finally have a new series of higher highs. If this bear is over a new bull-market should push Gold towards $1,500 within 1-3 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.
Bitcoin could become the "new money" for the digital 21st century. It is free market money but surely politicians and central bankers will thrive to regulate it soon.
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