Hi guys
The last time I did a detailed gold analysis was exactly 1 year back (quoted comment and below) – July 9, 2017
https://hotcopper.com.au/threads/gold.2750023/page-33359?post_id=25758021
As I mentioned there, gold stocks seemed to be in a bottoming process with
GDX at 21. My last year’s analysis seemed right as gold stocks immediately bottomed with GDX reaching 25 in 2 months time. I see a similar setup now and will try to highlight some points below while mentioning whether I think it is positive or negative for gold. A warning in advance that this comment is long as I have been very detailed from several different angles
1/ GDX at 21 (positive)
Firstly I already pointed out 1 year back that GDX has had
strong horizontal support at 21 over the earlier year (2016-17). This has now been further confirmed as last year too, GDX immediately thereafter
bottomed around 21 in July and again in December, Feb, March etc.
Ideally, this has proven to be
extremely strong support. We have reached a 21 handle again with GDX at 21.96. So, obviously, there is still some risk of going a little lower if you want to see it that way but overall, we are in bottoming territory
2/ Potential Bounce off trendline (positive)
GDX is also due for a bounce off trendline if we have to go in direction of uptrend we have had since March
https://www.finviz.com/quote.ashx?t=gdx&ty=c&ta=1&p=d
GDXJ is also due for a bounce off trendline if we have to go in direction of uptrend we have had since December
https://www.finviz.com/quote.ashx?t=gdxj
Same for major components of GDX like ABX (uptrend since March)
https://www.finviz.com/quote.ashx?t=abx&ty=c&ta=1&p=d
Major component of GDX like NEM possibly finding horizontal support
https://www.finviz.com/quote.ashx?t=nem&ty=c&ta=1&p=d
Above, we see that US gold stocks as a whole showing some signs that bounce off trendline could happen now if recent uptrend is to continue. Needless to say that if all above get negated, it could be some cause for concern
3/ GLD - horizontal support and trendline bounce (positive)
GLD is again at levels of
horizontal support – 1 year bottom price around 118 around December
https://www.finviz.com/quote.ashx?t=gld&ty=c&ta=1&p=d
We’ve had a downtrend over last couple of months and as can be seen,
bounce off trendline is due
Note though that further falls are not impossible and going back over last couple of years, we see that around 115 could be next line of support if it falls further
4/ Gold – support at 1240 and other levels (positive but with risk till 1180-1200)
https://www.finviz.com/futures_charts.ashx?t=GC&p=d1
AS can be seen, gold bottomed around 1240 in December. This was IMO the reason why we recently seemed to again find support at 1240 now. We goldbugs already now past significance of bottoms around 1180, 1200, etc. So some risk still exists but we are entering strong support levels
5/ Gold commercial hedgers (smart money) short position declining (positive)
https://www.finviz.com/futures_charts.ashx?t=GC&p=d1
Gold commercial hedgers short position getting lower and lower. Note that Friday showed a very slight increase but it includes data only till Tuesday and hence IMO wont take into account changes from Wednesday to Friday when gold took a further tumble. I find it hard to believe that commercial hedgers would have added any shorts in this time. Of course if one wants to be safer, then one can wait till net position approaches zero but take a look at last July’s position.
July 7, 2017
http://news.goldseek.com/COT/1499455834.php
Commercials were net around 107K short in July 2017 but gold still went up sharply thereafter
July 13, 2018
http://news.goldseek.com/COT/1531510569.php
Commercial hedgers are now around net 100K short – not the best position but not bad when you also see and compare to July 2017 and December 2017. Also large trader position and commercial hedger position are both approaching zero signaling potential change of direction to come
6/ Upcoming Fed meeting (extremely negative)
Next Fed meeting is coming up by month end. We are around 2 weeks away. Based on past history, some weekness could be anticipated around this time. This is one risk to watch for in coming days, as bounces off trendlines that I mentioned above could be temporary, if at all we have them.
7/USD (positive)
https://www.finviz.com/futures_charts.ashx?t=DX&p=d1
Gold has an inverse correlation to USD
USD has shown
very strong resistance around 95 as we can see above – November and then again over last couple of months.
Also note that commercial hedger
net short position has sharply increased. Keep in mind that if 95 breaks, then some short term panic for gold bugs could be due as USD could even appreciate to around 97-98. We can hope that 95 is the resistance level for USD.
8/ JPY (positive)
https://www.finviz.com/futures_charts.ashx?t=6J&p=d1
Gold has shown a strong positive correlation to JPY over last few years. JPY is around 89 and while it could still fall a little lower, one year chart shows
extremely strong support around 88.
Also note that
commercials have been going very long since June as JPY was falling, suggesting that a bottoming of JPY is in place.
Japanese legend Eisuke Sakakibara (Mr. Yen) has over the past 2 years been suggesting that yen could rise
https://www.fxstreet.com/news/usd-jpy-could-drop-to-100-by-end-2018-ex-mr-yen-201801260244
9/Euro (positive)
https://www.finviz.com/futures_charts.ashx?t=6E&p=d1
Gold would ideally be positively correlated with Euro since strong Euro = weak dollar
Notice that
commercials have massively reduced their short positions in Euro.
Also Euro has been finding strong
support around 1.16 after a big tumble over last couple of months
10/ GBP (positive)
https://www.finviz.com/futures_charts.ashx?t=6B&p=d1
Gold would similarly ideally be positively correlated with GBP and commercials are
massively long. Some good support has been shown to exist around the
1.30-1.32 level over last year
11/ AUD (extremely negative)
I had pointed out many positive factors for gold in July 2017 but had not mentioned anything about AUD. While GDX appreciated sharply over the next few months, I remember that Aussie goldies were lagging a bit
https://www.finviz.com/futures_charts.ashx?t=6A&p=d1
See above chart where we see that AUD sharply appreciated as commericals were around zero in July 2017, and then went massively short as AUD sharply rose to 81.
This is of course a massive risk again as commercials are massively long the AUD this time, while large traders are massively short.
I are perfectly aware that the general commentary is that AUD is going to sink but am just presenting the commercial hedger position (which seems completely opposite) above which is a little scary. If AUD rises sharply, then we could see a scenario like last year where US goldies rise but Aussie ones lag badly.
We can of course hope for a scenario like 2011 where AUD rose sharply in line with general boom in commodities. So is something on those lines going to happen again? A huge rise in US gold price would of course create enough positive sentiment effect to offset negatives of muted rise in AUD gold.
Note that
CAD, another currency that moves with commodities like AUD also shows similar movement with big long commercial hedger positions building
https://www.finviz.com/futures_charts.ashx?t=6C&p=d1
12/ Silver (mixed)
I say mixed because I’m not sure what to make of silver. Commercial position over last few months was almost zero which is unbelievably bullish. Silver then shows a sharp rise only to see a sharp fall and now at a lower silver price, commercials are more short than last few months.
Silver is in a support zone though as around 15.5 has been strong support
https://www.finviz.com/futures_charts.ashx?t=SI&p=d1
13/ Platinum (positive)
Another precious metal , platinum has an
almost zero commercial short position and is probably due for a good rise, going by that
14/Palladium (positive)
Palladium is also showing
great reduction in commercial short position and is also close to
support zone - 900 to 950
15/ Buy the weakness (positive)
US Gold stocks (GDX) in general have been weak and past history over last couple of years has suggested that
weakness has almost always shortly thereafter given a good return. A counter argument can be made that Aussie goldies have been anything but weak and this would obviously be due to weak AUD
16/ GDX not getting bombed (very positive)
Anyone who has been in gold over last few years, knows how GDX and GDXJ used to get bombed when gold fell by even 5-10 USD. I don’t know but I just felt that GDX and GDXJ falls were a little muted this time around, although maybe this is just a perception since we are used to seeing good gains in Aussie goldies.
Gold stocks would always lead and be ahead of the metal and I just felt that the falls are getting weaker.
17/ Long term charts of DXY and gold (positive)
https://hotcopper.com.au/threads/gold.2750023/page-44196?post_id=34346058
Nice post from
@scatterbrain showing how DXY highs are on lower strength and gold is oversold
18/ Elliot wave (possibly positive)
I’m not really an Elliot wave guru but understand some basic concepts.
My best understanding is that 2000-2011 bull phase is wave 1, 2011-2015 year end is wave 2 and rise from Jan 2016 can be start of multi year wave 3.
Then as part of above big wave 3, again, from Jan 2016 to July 2016, we have wave 1, and then deep correction from July 2016 to December 2016 is wave 2. Which brings us to
wave 3 which commenced in Jan 2017.
Now for the wave 3 starting from Jan 2017, I think first wave of that ended immediately in Jan 2017, and we have been going on a long sideways moving corrective wave 2 ever since.
If we are in wave 3 (of above 3), we would have to go much, much higher. So, either that has just barely started or is due to start at some point within coming year probably. The possibility of wave 3 starting is what has been giving me some FOMO since quite some time, as movement can be quite violent.
If wave 2 is still on, then there is some risk of further downward pressure on GDX at least till 21 IMO, if not lower. If anyone with a deeper understand of EW theory wants to give this a shot, I’d love to hear.
19/ Conclusions
Trendlines, horizontal support and commercial hedger activity all seem to suggest that bottoming process is in. IF all of these fail, then of course there is a risk of massive fall in gold, but available data does not suggest it at first glance.
I’ve tried to cover a vast majority of factors influencing short to medium term position of gold and most are pointing in 1 direction. I’ve covered a wide range of possibly negative factors too to give good balance to all the positive indicators that we are seeing.
Risks of gold till 1180, GDX till 21, etc. are obvious risks and some further breaks can also happen. So, please keep in mind that I’m not saying that gold is going to sharply accelerate from tomorrow, as valid risks exist. Also remember that commercials often move much ahead of time which sometimes might not make sense to many observers.
As we gold bulls know, it has been very difficult to predict short term fluctuations and trend with accuracies. I’ve tried my best above to mention some stuff and my very humble opinion which could be medium term positive or negative and at first glance, it appears that we could be in a bottoming process which has been going on from some time. Either that or we are headed for some serious falls
but one way or the other, gold stocks seem to be again approaching a place where some decisions look likely
DYOR has to be emphasized as we know goldies are a chaotic place, and I could be hopelessly wrong
Cheers
