GOLD: Lower Lows or Not?
Updated
GOLD
Gold has found at least a short-term double bottom at 59.44 (1851). It has since bounced to 62.26 (1935). Yet no major resistance has been broken, and therefore today I am going to focus on the parameters to signal whether the bottom is in or lower lows are ahead.
So far, Gold is rebounding in a corrective fashion, in 3 waves up: abc. The two resistance levels I am watching are ~62.26 (~1953), where wave c = wave a, and 63.45 (2000), where wave c = 1.618 * wave a.
We’re currently in a bullish flag pattern (blue lines in chart above). It is notable that the upper trendline resistance is at ~62.26 (~1953), matching the wave c = a target. This also happens to be the 50-day moving average, which is currently around 62.20 (1950). When you get symmetry in levels like this, it makes them all the more significant.
In the event that we do convincingly break 62.26 (1953), the next resistance level is 63.45 (2000), which also happens to be the 61.8% retracement of the entire move down from 66.72 (2089) to 59.91 (1851). It was also the peak on September 1 and a nice round number as key resistance: 63.45 (2000). Add the fact that it also represents wave c = 1.618 * a, the force is strong with this resistance level too.
Suffice to say, we need to see at least a break of 62.26 (1953) with follow-through above 63.45 (2000) to significantly increase confidence that the bottom is in at 59.44 (1851) and we’re heading up to new record highs.
On the contrary, failure at either of these levels maintains the risk of lower lows before we begin the journey north to new highs.
MINERS
I could go through the same exercise in GDX and SILJ, where I am also seeing similar confluences, but for the sake of brevity, the key resistance levels to watch in both are ~41 and ~15 respectively.
CONCLUSION
It remains to be seen if the lows are now in place and the rally to new highs has already begun or this is just a corrective bounce before lower lows and then we take off to new highs. Either way, the risk-reward is skewed heavily to the upside, in my opinion, beyond the next few weeks. This is just a question of different routes with the same ultimate destination: UP!
Gold has found at least a short-term double bottom at 59.44 (1851). It has since bounced to 62.26 (1935). Yet no major resistance has been broken, and therefore today I am going to focus on the parameters to signal whether the bottom is in or lower lows are ahead.
So far, Gold is rebounding in a corrective fashion, in 3 waves up: abc. The two resistance levels I am watching are ~62.26 (~1953), where wave c = wave a, and 63.45 (2000), where wave c = 1.618 * wave a.
We’re currently in a bullish flag pattern (blue lines in chart above). It is notable that the upper trendline resistance is at ~62.26 (~1953), matching the wave c = a target. This also happens to be the 50-day moving average, which is currently around 62.20 (1950). When you get symmetry in levels like this, it makes them all the more significant.
In the event that we do convincingly break 62.26 (1953), the next resistance level is 63.45 (2000), which also happens to be the 61.8% retracement of the entire move down from 66.72 (2089) to 59.91 (1851). It was also the peak on September 1 and a nice round number as key resistance: 63.45 (2000). Add the fact that it also represents wave c = 1.618 * a, the force is strong with this resistance level too.
Suffice to say, we need to see at least a break of 62.26 (1953) with follow-through above 63.45 (2000) to significantly increase confidence that the bottom is in at 59.44 (1851) and we’re heading up to new record highs.
On the contrary, failure at either of these levels maintains the risk of lower lows before we begin the journey north to new highs.
MINERS
I could go through the same exercise in GDX and SILJ, where I am also seeing similar confluences, but for the sake of brevity, the key resistance levels to watch in both are ~41 and ~15 respectively.
CONCLUSION
It remains to be seen if the lows are now in place and the rally to new highs has already begun or this is just a corrective bounce before lower lows and then we take off to new highs. Either way, the risk-reward is skewed heavily to the upside, in my opinion, beyond the next few weeks. This is just a question of different routes with the same ultimate destination: UP!
Note
Should we get a near 20% drop in stocks, peak to trough, given the correlation between stocks and precious metals since March, do not be surprised if we drop further in Gold and Silver, perhaps to lower lows. A gift if we get there IMHO.Note
Remember the trade war between the U.S. and China? Recall how the markets would swoon when tensions escalated and then rebound when a phone call was scheduled or Trump said he liked Xi? Seems a lot like the debate on stimulus these days, except Trump’s counterpart this time around is the Democrats. Tell me if this doesn’t sound reminiscent of the trade war, which is still ongoing by the way:Oct 6 – Trump says all negotiations on fiscal stimulus are postponed until after the elections: stocks dump
Oct 7 – Trump reverses course overnight and offers up a skinny deal for Pelosi to approve: stocks bounce
Oct 14 – Mnuchin says it will be difficult to get a stimulus deal done before elections: stocks fall
Oct 15 – Goldman publishes a note citing “Stimulus Pessimism”: stocks fall further
The point being that the primary driver of markets these days is clearly the prospect of new fiscal and monetary stimulus (and when it is going to happen).
This should come as no surprise, because the primary reason for the entire rally in stocks, bonds, and precious metals since the March lows was stimulus, also known as liquidity. Then in July, the Fed slashed monetary stimulus, and in August, fiscal stimulus expired. Now everyone is waiting for the next round of stimulus, which promises to be massive.
The problem is that we have the elections in November, and although it doesn’t matter who wins from a financial perspective—we’ll get stimulus whoever is the President—the process to determine who is officially the next Commander-in-Chief could be extremely contentious, drag on for weeks or months, and ultimately cause social unrest or even civil war. All of which could delay stimulus until December, perhaps even January. Given the spread of new lockdowns, this could trigger a risk-off response in stocks and precious metals as well as a rally in the dollar. I would argue that it has already begun. The question is how low we could get in stocks and precious metals and how high in the dollar.
But let me be clear, I believe additional stimulus is inevitable, it’s just a question of when. The alternative is the total collapse of everything. When it does finally arrive, I expect it to be massive, likely as a result of a sharp drop in stocks. The effect will trigger up to a 100% increase in stocks over the next couple of years. More importantly, the dollar will likely plummet and we’ll see new record highs in Gold and perhaps even Silver and the miners. Worst-case, we have to wait until January, but stimulus on steroids come could any time before that.
While we await new stimulus, the risk of further upside in the dollar and downside in the metals and miners remains. That said, when the stimulus finally transpires, the rally in precious metals and miners promises to be spectacular, imho. Stay patient and let the market come to you until then.
Note
It would be a massive boost IF we did get a deal. Otherwise, the risk is still DOWN, especially if and when we get legal battles and social unrest after the elections.Note
Past revolutions typically stem from widespread starvation and evictions, both of which we're seeing the beginnings of already. But don't worry, free money for all on the way.Trade closed: target reached
We broke 1860, have now backtested it twice and held. So far, so good. Although the odds have increased that the bottom is in place, I do not rule out a drop back below 1860 or a lower low "yet" until we take out 1900 and the big resistance at 1966. Target ~2300 or higherNote
Note
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