Gold Price Resources

Gold Market News

Historic Bounce in Gold at Key Fibonacci Level

Given the extreme recent demand in the precious metals markets, this is the first opportunity I have had to reflect on the charts. For those interested in my thoughts on rising premiums and the cause for falling spot metal prices in early March, please refer to the articles linked.

I want to review price action in gold. Below is the long term, 40-year semi-log chart of gold weekly futures. I have drawn my fibonacci levels from the secondary high in 1980 ($720) to the bottom in 2001 ($250). The story is as follows:
  • Following a 20-year bear market, gold began its bull market after 9/11, with price finally retesting the secondary high at $720 before a pullback to the 61.8% Fibonacci retracement.
  • Support held there, and a second leg to a new all-time high at $1030 (161.8% extension) commenced before a retest of the $720 level at the 2008 bottom of the Great Financial Crisis (formerly resistance, now support).
  • The subsequent bull move took gold to new all-time highs at $1910, stopping perfectly at the 361.8% fibonacci extension.
  • The ensuing bear market backtested all the way to the prior peak at $1030 (161.8 extension) before finally breaking above the 261.8 extension in August of 2019.
  • Since August, gold has peaked at $1700, and the recent liquidity driven sell-off has simply backtested the breakout at $1450 (261.8 extension), where we have seen a powerful and historic rally this week of over $250 in two days.

Gold Long Term Chart

Gold recently recaptured prior support in the mid $1500s, which it had briefly lost. This was important. If gold can hold the $1450 level, the next logical push would be to retest the all-time highs at $1910. A break from there would target the 461.8 extension at $2400 (measured from 1980 peak to 2001 trough), which also coincides with the 161.8 extension from the August ’11 peak to the December ’15 low.
Silver has been the laggard relative to the gold price (very common in liquidity driven sell-offs), and last week the gold:silver ratio hit an all-time high of 117/118, which coincides perfectly with the 161.8 Fibonacci extension from the 2008 peak (gold outperforming) to the 2011 trough (silver outperforming). The ratio peaked at a weekly RSI reading of 92 (!), which is an all-time high, and further supports the expectation of a likely pullback. As of this writing, the ratio stands at 111, and it would appear there is more downside to come (near term silver outperformance).

GSR-March-2020

As always, we look forward to your feedback. Be safe out there!

 

 

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Why Are Precious Metals Prices Falling?

In response to my update yesterday – Demand Shock: The Forces Behind Rising Premiums – many of you sought to know an answer to the question: why are prices falling if demand is so unprecedented? I will seek to explain below. To clarify, yesterday I wrote about premiums; today I am writing about “spot price.”

What is the Spot Price?

The spot price of gold is the price of one ounce of gold as contained within 100 and 400-ounce gold bars traded on the commodities exchange at current market prices. For silver, it is the price of one ounce of silver as contained within a 1,000-ounce silver bar traded on the commodities exchange at current market prices. These prices for “immediate delivery” are distinct from futures prices, which indicate trade value for delivery at a future date. Large institutions, hedge funds, sovereign wealth funds, central banks, governments, mining companies, and many other large traders buy and sell futures contracts (and associated derivatives) for physical delivery, hedging, or simply long/short exposure. According to the World Gold Council“The three most important gold trading centres are the London OTC market, the US futures market (COMEX, ICE, etc) and the Shanghai Gold Exchange (SGE). These markets comprise more than 90% of global trading volumes and are complemented by smaller secondary market centres around the world (both OTC and exchange-traded).”


Liquidity Crisis

As in the financial crisis of 2008, when markets collapsed across the globe, highly-levered institutions hit margin calls on underwater positions. In simple terms, this forces the liquidation of liquid assets. Real estate and large private equity holdings are not liquid. Other assets – especially metals – are highly liquid. The positions are quickly sold off to raise cash to meet margins. As the saying goes, cash becomes king. This is why the value of the dollar is rising despite the unprecedented volume of new dollars that are being injected into the system now and over the coming months. As defaults and bankruptcies accelerate across the globe, dollars will evaporate from the financial system, causing deflationary pressure. It will require ever increasing stimulus to offset the dollars leaving the system.

No matter how much gold you own, when you need to pay your taxes, your rent, or your groceries, you still need to sell gold to buy dollars. The dollar remains the only viable means of exchange. It’s as simple as that. And this is happening in real-time, on a global scale, in multi-billion dollar transactional volume.

Gold as Safe Haven?

This begs the question: why, then, is gold perceived as a safe haven asset? Gold’s strength is popularly based on the notional price of gold in dollar terms. But price is not the same as value. Just as in 2008 following the Lehman Brothers collapse, when gold fell from a peak of $1,000/oz to $740/ounce in a liquidity squeeze, gold’s value relative to the S&P500 now (as it did then) is increasing. In other words, in this sell off, it takes less gold to purchase the same dollar amount in equities. Gold is strengthening on a relative basis. Price is not the same as value.

It is also important to understand what happens after the liquidity crisis. When the dust settles on the global market sell-off, and the demand for the dollar wanes, gold and other precious metals tend to outperform on the way back, as happened in 2009-2011, when gold skyrocketed from $740/oz to $1900/oz, and silver moved from a low of $8.50/oz to $50/oz.

Silver tends to be more volatile than gold, and the sell-off on the front end tends to mirror that of equities because of silver’s industrial demand, but the reversal on the way back tends to be dynamic. This is why you now see the gold:silver ratio at all time highs today.

But What About All of the Retail Demand?

The United States Mint – the largest domestic supplier of retail bullion – produced 120,000 Gold American Eagles in 2019 and 61,500 Gold American Buffaloes. There is an active and robust secondary market, but as far as new production, the total value of newly minted gold output was ~$281M (using an average $1550 gold spot price) in 2019. This equates to a little over $1M in gold production per business day. Meanwhile, the notional value of estimated gold trading per day on the various gold exchanges globally is $100B. Certainly, there are other mints producing gold for the retail market. And certainly the retail gold market worldwide is much larger than $1m/day. But trading previously-minted gold product does not create new demand on the open market – the only retail demand that would affect the spot market is that which is newly minted. So even if the US Mint increases output by 10x overnight, they would be producing only $10M in gold coins per day in a market that trades $100B per day.

Even if all of the mints of the world could collectively output $1B of newly minted retail gold product per day, it would still represent only 1% of daily global trading volume.

The arguments about whether or not the gold price is manipulated, or whether there is enough gold backing all of the derivative contracts, or whether the gold price should really be this or that price, are all red herring arguments. They are no doubt important debates for long term consideration, but they are not directly relevant to why the gold price is not moving today because of retail gold coin demand.

The simple answer is math.

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Liquidity Crisis Accelerates and Hits Metals Hard

The sell off in markets accelerated by coronavirus and the global reaction to curtail the pandemic has left no prisoners, as nearly all asset classes are selling off in a flight to liquidity. As large institutions face margin calls, they are forced to close positions or raise cash by selling anything and everything that is liquid. Gold and silver – the “safe haven” assets – are no exception. I would remind readers that in the global financial crisis gold fell 27% and silver fell 55% in nominal terms. Gold outperformed equities on a relative basis, but silver actually underperformed.

The selloff in the markets has gold now testing key technical levels and silver breaking down from support. Mining stocks have accelerated to the downside even faster. In a liquidity crisis, nothing is immune.

Gold

Gold is now retesting the rising trend line from the August 2018 low. A break here would target the major horizontal breakout area ~$1530-$1540. That will be the last gasp to preserve a bullish regime. If price trades below that level, it could send gold down towards a retest of the six-year breakout level at 1370.

Gold-3-12b

 

GDX – Gold Miners ETF

GDX is in a similar position to gold. All key technical levels have broken down and only one remains before a complete capitulation (the rising trend line from July 2018) at ~21. A breakdown there would target 17.

GDX-3-12

Silver

Silver has broken down from its megaphone pattern, and most importantly just broke horizontal support. This is bearish action in silver, and there is no meaningful support here until a retest of 14.30 from May 2019.

Silver-3-12

Trading activity in the physical market has been extremely robust and consuming nearly all of my time, but I will try to keep updates coming. Be safe out there!

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Market Crash of 2020: Where Do We Go From Here?

Fear or Greed?

The last two weeks have been extremely volatile in the markets, and for the first time in a long time my friends and family have called to inquire about “what is going on in the markets?” Coronavirus contagion fears, coinciding with all-time highs in the markets, has been the scapegoat for a rapid, deflationary decline across nearly all markets except bonds, which resiliently continued to fetch a bid. Even the US Dollar, traditionally a safe haven in deflationary swoons, declined.

Here is how I see the markets:

S&P500

The S&P500 broke out to all time highs in September of 2019 and proceeded on a rapid, almost linear ascent to new highs ~3400. During this period, equities became way overbought, and the fear/greed index topped out at an unimaginable 97/100. These levels are/were unsustainable. That this inevitable pullback has been violent and rapid is as much a reflection of the swift ascent of the market as it is any underlying issue or influence of a pandemic. As the saying goes, the market is a staircase up and elevator down.

In the initial decline, I expected the S&P to find support ~ 3030-3060 level, where there was a confluence of rising channel support, horizontal support, and the 200 DMA. This area was also an approximate 10% decline from all-time highs.

SP500-200DMA

However, equities knifed through these levels on the way to rising channel support from the 2018 low, and in the process reversed the enthusiasm from January, got way oversold, and pushed the fear/greed index to 5/100. This is where we have seen the bounce.

And if we zoom out even further, and use a close-only linear chart to remove the noise and volatility of the candles, the pattern is a really simple (and bullish) breakout and successful retest. Resistance is now support.

SP500-ZOOM

Bonds

The response to these panicked conditions has been further monetary easing, as the plunge protection team came to the rescue this morning with a significant 50 basis point rate cut, adding further fuel to the bullish case for bonds and reinforcing the thesis that the Fed’s true mandate is supporting the equity market. Using the ETF TLT (20-year treasury bond ETF) as a proxy for the bond market, the chart remains bullish in a rising channel with an initial target of 158 (an area I have targeted for nearly a year).

TLT-RISING CHANNEL

Of particular interest to me is the mortgage-backed securities ETF the MBB, which is the best proxy for the trend of mortgage rates. The January breakout was a signal that the MBB was poised to retest all-time highs at 110+. Based on the strength of this move, I think we get there and eventually break out to new all-time highs. This is going to create a tailwind in the housing market as mortgages get cheaper. Those who already own a home should benefit through the refinance process.

US Dollar

The monetary easing has put a headwind on the US Dollar, which in the recent rise to ~99 reacted to the long term falling trend line and is now falling back towards rising channel support from May 2018. I continue to believe a long term secular resolution for the dollar is coming before year end.

USD Big PICTURE

Precious Metals

The precious metals sector remains in a strong bullish uptrend. Like the S&P, gold broke out above former resistance to new six-year highs at $1690, and swiftly dropped $100/oz to retest the breakout level. That level is now support, and as of this writing gold has bounced hard back up to $1650.

GOLD-LINEAR

Silver has bounced off of horizontal support and is forming a broadening megaphone pattern. A sustained move above $18.60 should set up a move to $20.70.

The miners also remain in a bullish uptrend. Support has held for GDX, which is consolidating in a rectangle pattern just below resistance at 31. The measured move on a breakout would target the 36-37 level, which coincides with the 50% Fibonacci retracement.

GDX

Horizontal support and rising channel support also held for the Junior miners, GDXJ, which seem poised for another run at resistance at 52.

As always, whether you agree or disagree, we would love to hear your feedback.

 

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$GC Mid-month Gold Update

Trend Remains Strong and Intact

Gold-Feb2

Price action in gold has traded in a narrow window over the past few weeks, winding into a tight coil as it begins to consolidate for another leg higher. The wave counts suggests that gold is in the early stages of a Wave 5. In the chart above, the key near term level to watch to the downside is $1540. This level served as resistance in September 2019, and has been support for the last month. This level also roughly coincides with rising support from the uptrend channel that commenced in August 2018.

A break of $1590 to the upside would represent a breakout of the symmetrical triangle gold has been forming since December 2019. The measured moved would imply a run to the top end of the channel around the $1750 level.

If gold breaks the $1530-40 level to the downside, it would likely fall swiftly back to support at $1450, at which point a full backtest of the six-year breakout at $1380 would remain in play. By all indications, this seems like the least likely scenario. Probabilistically, I think gold is more likely to break up from this coil, or at worst, retest $1540 before making a thrust higher.

As always, I hope this is helpful, and I welcome any feedback or questions.

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$GC Gold Ends January on a Monthly High

Gold Breaks Out; Silver Gearing Up for a Move

Gold Monthly
Gold bugs should be pleased with the monthly performance of gold in January. The definitive monthly break of the $1520 level, which had acted as strong monthly support six times between 2011-2013, before serving as resistance during this recent consolidation period between August and December, has sent a bullish longer term signal to the market.
The monthly gold chart (above) has honored the 38.2% and 61.8% fibonacci retracements religiously over the last nine years, which makes this month’s recent breakout all the more significant. In the chart below, you will note that I drew the beginning of my Fibonacci levels from the secondary high in 2011, and not the primary high (the absolute peak). In this case, the year long shelf following the peak is an area of much greater significance and the better location to start the ratios. Thus, the recent break of 61.8% is all the more notable.
Gold bulls would now like to see follow through in the price of silver, which has lagged throughout the recent run up. Silver now sits at the nexus of a nine-year falling channel (falling resistance) and an 18-month rising channel (rising support). The long-legged January doji candle is a symbol of indecisiveness. A breakout in February would set up a run to the 23.6 fibonacci retracement at ~$21, which is an area of overhead resistance. Bulls would need 16.20 to hold on the downside in the event of a price reversal.

As always, I hope this is helpful, and I welcome any feedback or questions.

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[VIDEO] US Housing Looking Very Bullish? – Jan 30th, 2020

Bullish Tailwinds in US Housing

In this video, I review key technicals in the US housing market, specifically the real estate ETF REZ, home construction ETF ITB, mortgage rates and lumber. I also explore some key demographic trends that could help fuel the rise in the US housing market.

As always, I hope this is helpful, and I welcome any feedback or questions.

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[VIDEO] Silver Update – Silver Testing Rising Channel Support – Jan 29, 2020

Silver Testing Key Level

In this video I take a look at the prevailing long and short term trends in the price of silver. While the decade-long trend remains down, the one year trend remains up. Yesterday’s .60 drop in price now has silver testing rising channel support from the bottom in May 2019. Bulls will want to see this price hold for another leg higher. If price breaks down from this rising support, the key levels are 16.90 and 16.20. Bulls especially need silver to remain above 16.20 for the longer term bullish picture to remain in play.

As always, I hope this is helpful, and I welcome any feedback or questions.
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[VIDEO] Market Update – Dr. Copper Looking Very Sick – Jan 27, 2020

Failed Breakout Disconcerting for Commodity Bulls

In early January I got very bullish copper as price was breaking out of a multi-year symmetrical triangle. The trade worked well initially, but price subsequently reversed and fell precipitously. In this video, I take a look at this price action, explain how I build a chart, and what the copper price means for the commodities sector.

As always, I hope this is helpful, and I welcome any feedback or questions.
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[VIDEO] Market Update – Gold, Oil, Equities, Bonds, and USD – Jan 08, 2020

Dollar Movement Will be Key in 2020

I made a brief video this evening to quickly run through some key charts I’m following and where I see the big picture trends.

Energy

In energy, I cover crude oil futures, $XOP and $XLE.

Precious Metals

In precious metals, I cover the charts of gold, silver, platinum, and palladium futures, as well as the S&P/Gold ratio. In mining stocks I review $GDX, the GDX/GDXJ ratio, Newmont Mining ($NEM) and Pan American Silver ($PAAS).

Currencies

For currencies, I stick to the US Dollar ($DXY), looking and both daily and long term monthly charts.

Fixed Income

In fixed income, I review the 20-year treasury ETF ($TLT), mortgage backed securities ($MBB), and high Yield corporate debt ($JNK)

Equities

In equities, I take a quick look at the S&P500 and and the micro caps ($RUMIC).
As always, I hope this is helpful, and I welcome any feedback or questions.
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Strong Move for Metals to Open 2020

Price Prepping for New 7-Yr Highs?

Happy New Year! We are kicking off the New Year with stocks at all-time highs, oil prices spiking on Middle East tensions, and the precious metals complex following through nicely for our November/December videos. If you haven’t had a chance to watch those videos, they offer a helpful background on the technical setup for metals and the price action we are seeing today.

GOLD

Gold finally broke out of a bull wedge in late December following a four month (healthy) consolidation I had labeled as wave 4 of 5 in a five wave Elliott Wave pattern. This pattern has been neatly contained within a rising channel from the $1180 low in summer of 2018 to the September high of $1565 (the 61.8% Fibonacci retracement from the all-time high in 2011). The breakout occurred at rising channel support, and unless this is a truncated fifth, the length of the rise should target a move to the 78.6% retracement at ~$1700. Gold has some work to do to get there, and will likely consolidate/pull back as it works through supply between $1560-$1580.
Gold Chart
The move is supported by strong confirmation throughout the mining complex, the breakout in silver, the overbought levels in the RSI (strong indication that the bulls are in control), the outperformance of junior miners relative to the producers, and a falling gold:silver ratio. The dollar has also shown recent weakness, breaking down from a multi-month channel, and is coiling into a multi-year symmetrical triangle that is likely to break strongly up or down before year end.
DXY-Long Term
I would also add that gold has been outperforming the S&P 500 since September of 2018. This is not well publicized, especially as equities continue to make all-time highs, but an important development, to be sure.
SP500 Gold Ratio
Lastly, I tweeted this chart of gold performance by months for the past 20 years. It is worth noting that January tends to be a very strong month for gold.

SILVER

Silver has lagged gold for six years but is finally showing some signs of strength. The gold:silver ratio has fallen from a peak of 93 in July to a near term low of 79 in September, and has pulled back to 86 in recent week. However, the trend is now down, and the recent move is forming a bear flag that should take the ratio lower (good for the entire metals complex).
GSR
Silver has followed a similar pattern to gold, moving in a rising channel from the September ’18 low. A strong close above 18.78 would signal that a move towards the 38.2% Fibonacci retracement at 22 is the likely terminal move for Wave 5.
SILVER 1-03-20

PLATINUM

Platinum has underperformed the sector for years. Price has flirted with the psychologically significant $1000 level twice now since September. However, the key level for platinum is $10-40-$1050. A break above that level would set up a test of the 38.2% Fibonacci retracement at $1300.
Platinum

PALLADIUM

Palladium has been the all star of the metals complex, even through the bearish six year trough for gold. Price skyrocketed to just under $2,000/ounce as it met with resistance at the 361.8% Fibonacci extension and multiple rising channel resistance. If Palladium can breakout here, the next price target is $2250.
Palladium

MINING STOCKS

I will not outline charts here of every mining stock I cover, but as a brief overview, see the charts below of GDX (Gold Miners ETF), PAAS (Pan American Silver), and Newmont Gold (NEM).
GDX has mirrored the technical pattern in gold. The key level is 31.50. A strong close above that level should usher in a swift move to 39.
GDX
Pan American has already broken out well above former resistance and seems poised for an eventual retest of all-time highs at 37, likely pausing at 29 along the way.
PAAS
Newmont is just now breaking above the 43.30, but not definitively. A clean break above that level would set up a run to 51.
NEM
As always, I hope this is helpful, and I welcome any feedback or questions. Have a great weekend!
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$DXY Dollar Coiling Up For a Move

DXY-Short Term

The US dollar has frustrated bulls and bears for the past several years, as it has traded inside a historically narrow range without a clear long term directional bias. However, in both the near term and long term charts, it would appear a larger, secular move is coming.

On the daily chart (above), the dollar has traded within an 18-month channel and is testing rising support for the fourth time. Additionally, rising support coincides with falling support from September, which has now been tested three times. This level is significant, and either the dollar is due for a bounce at this confluence of support, or it will break down here sending a strong, bigger picture signal to markets.
More importantly, if we zoom out to to survey the long term chart (below) covering nearly five decades, price action has been building and coiling into a symmetrical triangle. If prices break to the upside, a very long term secular breakout will commence with powerful deflationary effects domestically and across the globe. If price fails, the lower bound of the channel is in play with potentially all-time lows. While we must account for that possibility of all-time lows technically, it would be hard to imagine the US dollar underperforming global currencies so profoundly given the state of international economies, let alone the domestic and geopolitical consequences of such action.
DXY-Long Term
So while inflation, or even extreme inflation, is likely if the dollar breaks down, it is important to note that the dollar index prices the US dollar relative to other currencies, and not absolutely. A more realistic long term target if the dollar breaks down is 80, where there is significant support. It is a zone where the dollar could set up another run up to falling resistance.
The tip of the symmetrical coil in the chart comes to a point on December 31st, 2020. After several frustrating years for dollar traders, next year should bring a powerful secular resolution.
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