Originally posted April 17, 2016.
1. Market Update
As expected gold has been moving sideways in a confusing and volatile fashion. Staying at the sidelines was the only right thing to do. Neither bulls nor bears had an easy time. Now that we are already in spring I think gold is finally ready to dip below $1,200. I have been repeatedly saying that we need to wait for a dip into $1,180 - $1,190. It now looks like gold will do us this favor during the next couple of weeks. BUY THE DIP.
The gold- and silver miners instead have been on fire and are far away from any reasonable entry points. They will come back but I guess we have to accept much higher levels to buy them. Currently there is surely no need to chase them. Let's wait how the next 2-3 months unfold.
Our Bitcoin investment is doing very well. Bitcoin is about to break out of its triangle formation and seems to be close to a massive move higher. More and more people become aware of the technology behind Bitcoin - the blockchain. I guess this has the power to reshape the banking landscape and change how financial institutions operate.
Overall the surprise will be on the upside in all markets. I expect inflation to rise dramatically over the next 12-24 months.
With the new portfolio & watch list I want to help you in understanding that the outcome of the next trade is always random. But the occurrences of our edge over a series of trades and investments is what makes us consistent and profitable.
2. Bitcoin is breaking out !!!!
In my last report I became a bit skeptical about the immediate outlook for Bitcoin due to the technical setup. But the cryptocurrency has held up very well and is clearly breaking out to the upside. This is bullish! Take a look at the Bollinger Bands. They have become very tight and have been moving sideways for the last couple of weeks. Massive pressure has been building and now they are about to open up! An explosive rally is just about to start! As well the slow Stochastic oscillator is embedded and therefore locking in the uptrend. I especially like this type of slow but sustainable grinding higher with low volatility. Prices are just steadily pushing higher. Next target is the resistance zone between $480 and $500 and we are up already more than 14%.
On the downside I guess a move below the 50MA ($418) could easily initiate a larger correction down to the 200MA ($380). The Parabolic Sar Indicator will flip to a sell signal below $414. To protect our winning trade I recommend to move the stop slightly higher to $410. Overall just let your winnings run.
Action to take: Hold your Bitcoins and let your winnings run. Don't buy here.
Stop Loss: Increase your stop to $410
Profit Target: $800
Timeframe 6 -18 months
Initial 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 neutral since March 14th
Compared to my last public report we have five new bullish signal:
Gold USD - Daily Chart
Gold in Indian Rupee
Gold in Chinese Yuan
GDX Gold miners - Daily Chart
Two new bearish signals are coming from:
SPDR Gold Trust Holdings
GDX Gold miners Sentiment
US-Dollar Daily Chart
One signal has shifted to neutral:
US Real Interest Rate
My model has been neutral for more than five weeks now. Its conclusion remains to stay at the sidelines.
4. Gold's consolidation could morph into a correction but the mantra remains to buy the dip
Gold continued its consolidation and has not been able to establish a clear and sustainable trend. It's been dancing around the falling 3 year downtrend line ($1,247) since mid of February. Last week's top at $1,262 probably marked the begin of the expected pullback and gold might now roll over until June/July towards its rising 200MA ($1,141). Note that gold moved below its 50MA ($1,233) for the first time since early January. This confirms that the bulls are running out of power which is very typical in spring.
There are currently a couple of super bearish analysts out there and to a certain extent I can comprehend their arguments. Indeed a Head and Shoulders pattern is possible. However you could argue for a classic ABC-correction pattern as well. Without a doubt gold's CoT-numbers are awful too but as I explained last time we can not approach the CoT-report with bear market standards anymore. The massive physical ETF demand has transformed the gold market and during a bull market the commercial short position has reached levels north of 300k contracts many times.
Therefore I definitely don't see Gold crashing below $1,140. My 1st target remains $1,180 - $1,190. This is a zone where we can start buying again and from which Gold already could embark towards $1,325. The second dip has to be bought whenever Gold is reaching its 200MA. I guess we will get two chances until July/August to buy into a dip.
Action to take: Buy the VelocityShares 3xLong ETN (UGLD) below $10.00
Stop Loss: $8.50
Profit Target: $18.25
Timeframe: 8-10 months
Risk ($1.50) / Reward ($8.25) = 1 : 5,5 (very good ratio)
Position Sizing: Don't risk more than 1% of your equity
Investors should buy physical Gold with both hands if prices move below $1,150 again until you have at least 10% of your net-worth in physical Gold and Silver.
Regarding silver my advise for all the impatient goldbugs came right in time. If you followed my recommendation three weeks ago you should have bought silver below $15.00. Silver opened at $14.88 just 2 days later and we are currently up 8.87% already. Be aware that silver has the tendency to move late in a precious metals cycle so the recent spike in silver is in line with my expectation for a slightly weaker gold price until summer. Continue to buy physical silver with both hands whenever prices move below $15,00 again. The Gold/Silver-Ratio has topped and silver has a huge potential over the next couple of years. I recommend to split your full physical precious metals exposure into 2/3 in gold and 1/3 in silver.
5. Grains running into a falling wedge
We got the expected pullback in the grains and the iPath Grains ETF dropped back to a low of $30.05. Unfortunately due to the immediate weakening technical outlook I had changed our buy limit from $30.50 down to $30.00 and we therefore missed the entry again.
In the meantime of course the grains have exploded higher leaving us behind. But that is how financial markets are working and I am not willing to chase any investment. But the overall outlook is still very promising as this ETF continues to move into a falling wedge. There is an open gap at $30.80 and with some luck we get our new buy limit order filled here.
Action to take: Buy the iPath Grains ETF (JJG) below $30.85
Stop Loss: $27.50
Profit Target: at least $39.00 maybe even $48.00
Timeframe 3 -12 months
Risk ($3.35) / Reward ($30.15) = 1 : 2.4 (not a perfect ratio)
Position Sizing: Don't risk more than 1% of your equity.
6. Portfolio & Watch list
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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