Gold Price Resources

An Analysis of Trends in USD, S&P500, and Gold

On the topic of future inflationary or deflationary expectations, there are strong fundamental arguments on both sides. In my simple interpretation, the deflationary camp (dollar bulls) make the case that the economy remains fractured, entire industries are being undermined by the pandemic, there is high unemployment, the personal savings rate is up, the stock market is at stretched valuations, the housing market is approaching bubble territory, and the demand for US dollars remains the prevailing undercurrent of international trade. The Fed, despite its best efforts, cannot seem to meet its inflation target. Further economic weakness or perhaps a market crash would incite a flight to liquidity, demand for dollars to meet debt obligations, and broad debt defaults, further tightening the monetary supply. A strong dollar generally weighs heavily on the price of precious metals, particularly in short-term liquidity crises, and creates the potential for a near term headwind on metals prices.

The inflationary camp argues that the Fed – and policymakers – have shown their willingness to do “whatever it takes” to prop up the markets and inject unfathomable amounts of liquidity into the system. There is seemingly no limit to the tools available for this purpose, as we have seen direct stimulus injections into personal bank accounts, Federal programs such as PPP, and other fiscal interventions. In theory, a $1,200 stimulus check could be a $12,000 stimulus check or a $120,000 stimulus check. The government can continue to print, and can even choose to monetize the national debt.

As a technical analyst, these theories are beyond my capability to fully comprehend in whole or predict with any accuracy. I simply look at the charts to determine primary, secondary, and tertiary trends, and what those trends communicate about the environment now. My job is to react to what the market. On that point alone, this is what I see.

The dollar is trending down

The primary, multi-decade trend in the dollar remains down. From 2008-2017 the dollar produced a powerful countertrend move that culminated in its third multi-decade lower high. This countertrend move broke down in March, has since pulled back to retest the breakdown, and appears poised for another leg down. The topping pattern formed from 2015-2020 appears to be a diamond reversal pattern. The primary downtrend would be violated only if price moved above falling resistance represented as the upper bound of the falling channel. So, in brief, the long term trend is down, the bullish, decade-long countertrend appears to be over, and it would appear that further weakness is ahead.

Gold is trending up

Conversely, gold is trending up. The countertrend bullish move in the dollar coincided with a countertrend bearish move in gold, which created a 7-year base (continuation pattern) that broke out to all-time highs this year. Gold remains in a 20 year uptrend, and the breakout to new all-time highs suggests that the primary trend is resuming its upward thrust.

The stock market is trending up

The S&P500 also remains up. While a crash may be in the offing at some point in the future, the 12-year trend remains up, and even the historic Covid selloff in March was notably just a back test of the two-year price shelf from 2015-2017.

The S&P500 priced in gold is trending down

Gold outperformance relative to equities remains noteworthy. The primary, 20+ year trend remains down. During the period from 2011-2018 when gold was basing, the S&P500 outperformed gold, but this entire moved appears to be a countertrend 38.2% Fibonacci retracement, which broke down in 2019 and now appears to be resuming the downward trajectory of the primary trend. This trend suggest further gold outperformance even if the nominal price of each rises in tandem with a weakening dollar.

The same chart with only the 50 week moving average and 200-week moving average shows only three crosses over the past 20 years. These crosses are infrequent, and the 50 week MA falling through the 200-week MA in March would seem to confirm the expectation of further downside pressure in this ratio.

As always, I would love to know your feedback.

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Is the Near Term Bottom in for Metals?

GOLD

The price coiling I highlighted in gold in my last post failed to the downside, which I mentioned was a possibility. There were two key levels, the 1865-1880 band, and then 1800, which would have retested the entire move. Buyers came in strong at 1865 and price held, right at the 100 day moving average. The breakdown from the pennant has created a bull wedge, and the RSI (relative strength index) never hit oversold levels, which implies to me that bulls remain in control. Gold is not completely out of the woods – a breakout of that bull wedge would confirm that 1865 was the interim low. I am looking for confirmation above 1935 and then 1950 for next sizable move. The price action in silver and the miners confirm this thesis.

GOLD 10-2-20

SILVER

Like gold, silver never got oversold on the 14-day RSI during the recent selloff, and price similarly bottom-ticked the 100 DMA. A break above the recent high of 24.57 should set up a retest of 26.

SILVER 10-2-20

GDX – Gold Miners ETF

GDX appears to have successfully recovered support at 39. At the moment, the recent sell off looks like a false breakdown from horizontal support, and price has formed a bull flag during this recent consolidation. Like the metals, RSI never got oversold during the sell off. This looks to me like a 2-3 month healthy consolidation in order to digest the explosive gains from the March low. Bulls just need price to stay above 37.

GDX 10-2-20

GDXJ – Junior Gold Miners ETF

The junior gold miners look even better than the majors. The entire selloff has been a simple retest of the breakout from the 2016 high. Like GDX, price has just been consolidating for 2-3 months and has formed a bull flag into support. RSI never got oversold during the selloff. Bulls want price to stay above 52.

GDXJ -10-2-20

GOLD/SILVER RATIO

In a bull market, we want to see silver outperforming gold on a relative basis, which implies a lower ratio. In the chart below, we can see that the trend remains down, and the ratio is pushing up against falling resistance. A breakout in price should send the ratio falling back towards a retest of the 68 level. In this case, we notice that the RSI was “oversold”, meaning the downward fall became extreme, and the pullback never hit overbought levels, which implies that the downwards pressure is prevailing. These signs indicate silver outperformance, which is far more prevalent when prices are rising than when they are falling. A breakout of this ratio would imply a skew towards risk off, which would be less bullish generally.

GSR 10-2-20

As always, we would love to hear your feedback.

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UPDATE: Gold Sitting at Equilibrium

GOLD

This is an update from my post on Friday:

Gold broke down from its pennant yesterday and hit first support at $1880. Price remains in a bull flag, but a break below $1875 should see a quick drop to $1800, which would be a backtest of the entire breakout.

GOLD-9-22-20

As always, we would love to hear your feedback.
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Gold Sitting at Equilibrium

GOLD

Since mid-August, sales in the physical precious metals market – red hot at the peak of the COVID outbreak – have begun to taper off slightly. This slowing of demand is directly correlated to price action. I will focus on gold specifically. 

A closeup of the gold chart shows a narrowing and tightly wound price coil of lower highs and higher lows. This narrowing trading range has formed a symmetrical triangle (pennant formation) that probabilistically favors a move in the direction of the underlying trend (60/40). At present, the equilibrium in the market is notable: price is sandwiched between the anchored VWAP (volume-weighted average price) from the August high to the August low, slightly above the 50-day moving average. Price remains in the center of a price channel formed by the March high/low. Relative Strength (RSI) is static at 50, right in the middle of its range. Periods of tightening price equilibrium and consolidation are healthy in uptrending markets as the market digests new prices.  As we approach the apex of this coil, gold appears to be setting up for a very big move.

The downside risk remains on a break of $1930 to $1880, and then possibly a full retest of the breakout at $1800. At present, this looks less likely to me. Meanwhile, a breakout above $1980 would setup gold on a path to $2300. Resolution is coming soon – likely late September/early October.

As always, we would love to hear your feedback.
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Inflationary Winds Blowing Across All Assets

In a stark reversal from the collapse of nearly every market just six months ago, the winds of inflation have pushed the sails of those same markets back to new (or near) all-time highs. The rebound from Covid has been a V-shaped recovery, not an L-shaped, W-shaped, U-shaped, or some-other-letter shaped recovery. The move in asset prices should not be conflated with an underlying economic return to normalcy – far from it. The rebound is simply a commentary on price.

Let’s start with my favorite markets – precious metals: (more…)

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Gold, Silver, USD: Where to Next?

The precious metals market is very clearly in a secular uptrend and prices look poised for further significant upside into the end of the year. My technical view is that in the short term prices have gotten a bit extended and that a pull back/consolidation is due (and healthy) to build the base for the next leg higher. (more…)

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Big Breakouts Across Metals Complex: Gold, Silver, Miners

Precious metals prices broke out this morning above key resistance levels in the mining sector as well as the underlying futures market for the raw metal.

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Gold and Silver Coiling for a Move

It has been over a month since my last entry on the markets, and aside from a few Twitter posts, most of my analysis has been confined to my desktop. The impact of the coronavirus on the retail precious metals market has been historic, with dueling supply and demand shocks, and as president of Texas Precious Metals, my time has been consumed by day-to-day operations. I finally have a bit of a respite this afternoon to share a few thoughts on the metals markets.

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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.

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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.”

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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.

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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.

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