Source: Clive Maund for Streetwise Reports 12/26/2017
Technical analyst Clive Maund charts gold and finds that although the precious metal is being buffeted by cross currents, the big picture is bullish.
Over the short to medium term, gold is likely to be buffeted by
conflicting cross currents as we will proceed to see a little later, so
it is important to keep a handle on the big picture, and for this reason
we will start by reminding ourselves how bullish the big picture is for
gold by looking at its long-term chart.
On its 10-year chart we see that gold is in the late stages of a large
Head-and-Shoulders bottom, which it is expected to break out of not far
into 2018. This is a huge base pattern that can support major
bull market. Points worth noting on this chart are the marked volume
buildup during the last half of the year and the steady rise in volume
indicators this year, especially the On-balance Volume line—these
developments suggest that gold is building up to something, after being a
sideshow during 2017 due to rising stock markets and the cryptocurrency
mania. The key level to note is $1400—a breakout above this level will
signify that gold is leaving behind the base pattern to enter a new
bull market phase.
The 30-month chart enables us to see in detail the period from the low
of the base pattern late in 2015. Following this low, which was the low
point of the Head of the Head-and-Shoulders bottom, the gold price
rallied quite steeply, which coincided with a spectacular rally in
Precious Metals stocks, but then dropped back to mark out the Right
Shoulder low in December of last year, almost exactly a year after
marking out the low of the Head of the pattern. Since that low gold has
advanced in a rather sedate manner this year as it gradually readies to
break out of the entire base pattern. At this point the trend is best
described as neutral and it will remain so until it breaks above $1400,
although that is not a reason not to buy it at opportune times, since we
can be pretty sure that a breakout is looming.
On the 6-month chart we can see recent action in detail. The breach of
support in the $1260s and drop below the 200-day moving average early
this month seems to have freaked out a lot of traders, who overreacted
by rushing to dump long positions. After this drop the gold price has
recovered over the past week or two, and has now risen into a zone of
resistance.
We have been wary of the Precious Metals sector for many weeks because
of the persistent high Large Spec long positions, as we can see on the
latest COT chart below, but this last drop by gold unnerved the Large
Specs, who dumped a sizeable portion of their long positions, which
action has improved gold’s COT structure considerably, although there is
room for further improvement. The situation in silver was rather
different, because the Large Specs bailed out of almost all their long
positions, creating a flat out bullish COT structure for silver now.
Overall, we would have to say that the COT structure for gold is now
modestly bullish, with the chances of gold holding up or advancing
further improved by the positive outlook for silver.
Click on chart to popup a larger, clearer version.
The latest gold Hedgers chart shows Hedgers positions to be squarely in
neutral territory, and this chart thus provides no guidance one way or
the other.
Click on chart to popup a larger, clearer version.
Chart courtesy of sentimentrader.com
The following chart shows that seasonal factors are quite bullish for gold in January, after being rather negative in December.
Chart courtesy of sentimentrader.com
As ever, when considering the outlook for gold, we have to factor in the
likely impact of dollar movements, so how does the dollar look? The
9-month chart for the dollar index presents a rather ambiguous picture.
We did get a dollar rally between September and November as we were
expecting, but it didn’t get as far as we thought it would before it
turned down again, and what looked like a Head-and-Shoulders bottom from
August through October morphed into an apparent Head-and-Shoulders top
from October through December, and with momentum weak and moving
averages in bearish alignment, the dollar increasingly looks sets to
break lower on this chart.
However, there are two opposing factors on the other side of the scales
that we must weigh against the bearish looking dollar index chart. One
is the latest dollar Hedgers chart, which shows that Hedgers’ positions
are at levels that have in the past led to rallies.
Click on chart to popup a larger, clearer version.
Chart courtesy of sentimentrader.com
And in addition the dollar is about to enter its most seasonally bullish
month of the year, although it must be emphasized that this is a
background factor.
Chart courtesy of sentimentrader.com
This is a difficult set of opposing factors to weigh up, but experience
shows that when one has a set of conflicting indications like this, it
usually leads to rangebound behavior, until the conflicting factors
resolve and the picture becomes clearer.
The conclusion to all this is that gold is building up to breaking out
of its giant Head-and-Shoulders bottom to enter a major bull market
phase, the start of which will be marked by gold breaking above $1400.
In the meantime, before this breakout occurs, we can expect to see more
erratic rangebound sideways trading behavior, with dips providing the
opportunity to accumulate gold and especially undervalued PM stocks,
since the risk of a more serious decline is considered to be very low.
Clive Maund has been president of www.clivemaund.com, a successful resource sector website, since its inception in 2003. He has 30 years’ experience in technical analysis and has worked for banks, commodity brokers and stockbrokers in the City of London. He holds a Diploma in Technical Analysis from the UK Society of Technical Analysts.
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Disclosure:
1) Statements and opinions expressed are the opinions of Clive Maund and not of Streetwise Reports or its officers. Clive Maund is wholly responsible for the validity of the statements. Streetwise Reports was not involved in the content preparation. Clive Maund was not paid by Streetwise Reports LLC for this article. Streetwise Reports was not paid by the author to publish or syndicate this article.
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Charts provided by the author.
CliveMaund.com Disclosure:
The above represents the opinion and analysis of Mr Maund, based on data available to him, at the time of writing. Mr. Maund’s opinions are his own, and are not a recommendation or an offer to buy or sell securities. Mr. Maund is an independent analyst who receives no compensation of any kind from any groups, individuals or corporations mentioned in his reports. As trading and investing in any financial markets may involve serious risk of loss, Mr. Maund recommends that you consult with a qualified investment advisor, one licensed by appropriate regulatory agencies in your legal jurisdiction and do your own due diligence and research when making any kind of a transaction with financial ramifications. Although a qualified and experienced stockmarket analyst, Clive Maund is not a Registered Securities Advisor. Therefore Mr. Maund’s opinions on the market and stocks can only be construed as a solicitation to buy and sell securities when they are subject to the prior approval and endorsement of a Registered Securities Advisor operating in accordance with the appropriate regulations in your area of jurisdiction.