I thought some might be interested in reviewing where the current gold price correction is going, given its obvious importance to gold stock's direction. Last night was a classic example of how important the trend is to how the gold price behaves, same as for all commodities, stocks etc.
Gold had been walking up against the trend for a few days, jumped higher on Fed and ECB news, mixed in with early reports that 15th Dec extra tariffs were still on. Then Trump tweets that a trade deal is very close, rumours circulate that he is about to do a deal that cancels the Dec 15th tariffs and halves existing tariffs. BOOM, gold price gets whacked $25 and world stock markets jump to new record highs. The expectations of a trade deal were already high, markets had been hitting new highs on the rumour of a deal for ages, even the USD dropped hard and yet gold got smashed.
Gold originally broke out in June imo because the reality the world's CB's never really unwind QE, first sign of a slow down they started cutting interest rates savagely and firing up the printing presses again. Last night Fed Reserve announced it will Flood Market With Gargantuan $500 Billion In Liquidity To Avoid Year-End Repo Crisis. Zero interest rates and this sort of money printing are the obvious endless Japanese future of CB supported fiscal deficit economic support, supportive for a rising gold price. Short term tweets and trade deals are somewhat irrelevant to longer term reality... except that markets trade short term around long term trends. The point I want to emphasise is that because gold is heavily shorted in a strong downtrend the path of least resistance and maximum 'news response' is also down. Thus gold price supportive news elicits short, muted rises in the POG, while gold negative news elicits exaggerated falls. It has always been so with all markets, but my personal view is that computing speed and power, the rise and rise of algorithm trading chasing momentum driven strategies, has created a self fulfilling beast. 'The trend is your friend' has never been more relevant.
Anyway, you all know as much, I just thought last nights gold reaction was a classic over-reaction not at all relevant to underlying drivers of the gold price over the longer term. Early in the morning US time gold hit $1487 which put it right at the downtrends upper resistance line, many playing gold short would have been hoping for some news help to squash it back down before things got out of control. The current 3 month downtrend from $1550 is clearly seen below. Where might it end is an important question for all gold related investors.
I am a big fan of the 200 day MA in technical analysis. Across so many markets this indicator is respected and followed such that it also becomes a target and very strong line of support/resistance. The 200 day MA was respected for 3 years during the 2009-2011 gold bull market, and recently provided support for the medium term uptrend test in May/Jun 2018. My first target for serious support if this gold bull market has legs therefor is the 200 day MA, extrapolated to get hit in this short term down channel some time between now and late Jan 2019. Given that gold is displaying a strong inverse relationship to world stock markets, the current trade deal loveathon will probably continue with a traditional end of year Christmas market rally.
I can see the gold downtrend momentum continue in a rising Christmas rally, hitting and sitting around $1450 into the new year. $1450 has already acted as support a number of times in this downtrend which adds to the 200 day MA significance as it also hits $1450 by year end. The piss weak Trump trade deal, which is no more than politically expedient 'bail out our farmers please so I can get re-elected' and continuing record high stock markets just don't make sense against the worlds many economic and political woes. I'm hopeful if not confident that the new year will bring about a world stock market correction (buy the trade deal rumour, sell the fact) which may see gold bid and breakout up from the current downtrend. Good timing for CDV who may struggle into year end without any news on EPA or corporate action, a continued falling gold price, and Canadian driven tax loss selling.
If the 200 day MA doesn;t hold then the price continues down towards the medium term uptrend from Aug 2018 that helped launch gold into a breakout above the 2012-2019 resistance line from $1350. The downtrends upper resistance line intersects the medium term uptrend by the end of March 2020, one would expect a resolution before that time. The simple reality is that either the downtrend or uptrend has to break, confirming the other, at that triangular apex. Corresponding to $1400, this apex sits at a psychologically important number, as round numbers tend to be. By that stage gold would have been correcting for 6 months which is longer than usual corrections. If gold has legs (and I think it does) then shorts will have a lot of work to do trying to push it back down below $1400 towards $1350. A lot would have to go right with the world economy and stock markets for this to happen, i can't see it, but it's possible gold has to correct back to $1350 before rising again.
Anything could happen of course, I'm just looking for hints as to when and where gold is going. Many would have sold early or played gold stocks short during the downtrend and those same players will switch to long on confirmation of a new uptrend. Get it right and a lot of money can be made. CDV is somewhat hostage to events beyond the gold price and largely out of it's control. More likely to fall with a falling gold price than rise with it until funding is sorted one way or another. With two weeks to go until Christmas it's looking like Archie will miss another couple of deadlines; the EPA and Funding, both of which have been slated for 4th Qtr 2019 most of this year. Once the EPA is in there are no impediments for a corporate deal (not that it can't happen with the EPA still pending).
My high level TA of the gold price is pretty simple, many in the gold industry will see the same obvious set-ups. If I was looking to bid on CDV or a JV, it would be smartest to strike at the lowest share price and the point of maximum CDV/shareholder stress. If the gold price looks like breaking upwards and out of this current downtrend this Jan then all gold stocks will get bid again, with share prices rising strongly. I would look to make an offer in mid to late Jan before the gold price turns and CDV's fortunes with it. Let the shareholders and share price sweat for another 4-6 weeks, rising fear that no deal at all will be forthcoming, fear that the gold price will continue to fall, then sign a contract stained with Archie's tears.
Good Luck
CDV Price at posting:
30.5¢ Sentiment: Buy Disclosure: Held
