While there is debate on whether or not Ben Bernanke, the Federal Reserve chairman, will release more quantitative easing, other banks are removing doubts. On Wednesday, The Bank of England’s Monetary Policy Committee voted to add another £75 billion of quantitative easing in order to support the weak UK economy. In the long-term, this is a bullish sign for precious metals. However, short-term traders should remain cautious.
In March 2009, the Monetary Policy Committee announced that it would start to inject money directly into the economy, in addition to setting interest rates at 0.5%. The move was made to stimulate the faltering economy and meet 2% inflation targets. The BOE bought £200 billion of assets (mostly government bonds) between March 2009 and February 2010. Now, the BOE will launch another round of quantitative easing worth £75 billion. After discussing earlier this month to inject between £50 billion and £100 billion, the Monetary Policy Committee voted 9-0 for more QE. In September, only one MPC member desired more QE, but now, all 9 members are in favor of more QE after citing a dramatic deterioration in the international outlook as a key factor.
The move to unleash more QE into the economy is another example that central banks are willing to print more money in order to temporarily prop up the economy. Investors take refuge in gold and silver because this money printing devalues fiat currencies. All members of the Monetary Policy Committee also agreed to keep interest rates unchanged at their record low of 0.5%, even though consumer price inflation rose to 5.2% last month. Ben Bernanke is also committed to record low interest rates until at least 2013. Record low interest rates drive gold and silver prices higher because savers and bond investors are punished through negative real interest rates. By the time inflation is factored in, the real return in bonds and saving accounts are pathetic. Investors looking for a store of wealth often find that gold and silver offer a better solution than bonds or saving accounts.
Although precious metals look poised for more long-term gains, the short-term picture is cloudy. Despite being a safe-haven, gold and silver have been trading along side of equities. When Ben Bernanke disappointed with Operation Twist last month, the markets sold off, including gold and silver. Gold fell from $1900 to $1,535, while silver fell from $40 to $26 when investors did not receive enough stimulus news from the Federal Reserve. A similar situation is taking place across the pond.
Although the BOE announced more QE, many explained it was not enough. Simon Hays from Barclays Capital says, “Our calculations suggest that £75 billion is likely to be insufficient to fill the demand gap that has emerged over recent months, but the lack of experience with this policy makes any attempt at calibration highly speculative.” Jonathan Loynes from Capital Economics explains, “The minutes suggest that the MPC thinks that the new round of QE will have similar effects to the last one, which is not particularly encouraging given the continued weakness of both bank lending and economic activity. Given this, we continue to expect at least another £75 billion extension of the programme in February, and perhaps considerably more thereafter.” Hopes are also running high that the leaders of Germany and France can work together to put a comprehensive solution in place to solve the euro debt mess in the next few days. If this plan does not satisfy the markets, gold and silver could see even more short-term weakness.
There was a wave of headlines affecting the markets today. China’s (NYSE:FXI) economic expansion slowed to 9.3% in the third quarter, its slowest pace in two years and below expectations of 9.3%. The Dow (NYSE:DIA) opened lower asGoldman Sachs (NYSE:GS) reported its second quarterly loss ever, and IBM (NYSE:IBM) missed revenue estimates for the second time in nine quarters. Keeping with September’s trend,gold (NYSE:GLD) traded lower with equities.
On Tuesday morning, gold futures for December delivery fell as low as $1,628.20, representing a nearly $50 decline. As the chart below shows, there was a quick spike down, but gold prices have since recovered to $1,650. Last month, I discussed that investors will be looking for support between $1,575 and $1,625. A pullback to these levels would represent a total retracement from the early August breakout.
Although gold pulled back, investors should feel encouraged that gold held this critical support area. On the other hand, investors need to respect the fact that gold has not traded above its 200-day moving average since late September. Furthermore, the pullback seen today briefly sent gold under its 100-day moving average. Gold continues to remain volatile, but has rewarded investors that stayed with the safe-haven metal over the past decade.
In addition to China, gold investors will need to pay close attention to market developments coming out of Europe. The US dollar (NYSE:UUP) has seen strength recently due to uncertainty surrounding the sovereign debt crisis. As the dollar strengthens, gold tends to dip. In our latest Gold and Silver Premium Newsletter, we warned readers about a coming dip in gold to $1625-$1650. These dips offer better entry points to investors looking to diversify into precious metals (NYSE:DBP).
In May of 2010, immediately following the flash crash many investors started to become bearish (nervous) regarding their position in gold and equities. Once the general public became aware that the stock market could fall 10% in a matter of minutes, investors became very cautious. Suddenly protecting their capital and current positions was at the forefront of their investment process.
A couple days later the market recovered most of its value, but it became clear that investors were going to sell their long positions if the market showed signs of weakness. It was this fear which pulled the market back down to the May lows and beyond over the next couple months which caused investors to panic and sell the majority of their positions. It is this strong wave of panic selling that triggers gold and stock prices to form intermediate bottoms. Emotional retail traders always seem to buy near the top and sell at the bottom which leads to further pain.
Just a couple weeks ago we saw gold, silver, and equities make new multi-month lows. This has created a very negative outlook among investors which I highlighted in red on the chart below. Since the panic selling low was formed just recently we have seen money pile back into gold and stocks (more so stocks).
This strong bounce or rally which ever you would like to call it may be the beginning stages of a major bull leg higher which could last several months. Before that could happen, I am anticipating a market pullback which is highlighted with red arrows on the chart below.
Chart of SP500, Gold and Dollar Index Looking Back 18 Months
Reasons for gold and stocks to pullback:
Stocks are overbought and generally retracements of 50% or 61% are common following large rallies.
The dollar index looks ready to bounce which typically means lower gold and stock prices.
Gold continues to hold a bearish chart pattern pointing to lower prices still.
Weekly Trend Trading Ideas
A few weeks ago I warned my followers that stocks and gold are forming a bottom and that we should be on the lookout for further confirmation signs. I also mentioned that I was not trying to pick a bottom, rather that I was looking to go long once the odds were more in my favor.
This is a potentially very large opportunity unfolding and there will be several different ways to play this. However, right now I continue to wait for more confirming indicators and for more time to pass before getting subscribers and my own money involved.
From August until now (October 17) the SP500 is down -6.3% and gold is down -8.1%. Subscribers of my newsletter have pocketed over 35% in total gains using my simple low risk ETF trading alerts.
I can email you my bi-weekly reports and videos by joining my free newsletter here:www.GoldAndOilGuy.com
Over the past year we have been learning more about the financial situations across the pond in Europe. With international issues on the rise, investors are panicking trying to find a safest haven for their capital. This money has been bouncing from one investment to another trying to avoid the next major crash in stocks, bonds, currencies and commodities. It seems every 6 months there is a new headline news issue at hand forcing the smart money to withdraw from one investment class too another hoping to avoid the next meltdown.
To make a long story short, I feel the market (stocks, bonds, currencies and commodities) are about to see another major shift that will either make you a boat load of money or you lose a lot of money if you are not positioned properly.
So the big question is “Which direction will these investments move?”
Let’s take a look at the charts…
Gold Weekly Chart – Long Term Outlook
Gold has just finished seeing a strong wave of selling this summer so it’s early to give any real forecast for what is next. That being said this long term chart may be telling us that gold’s rally could be nearing an end or a 12+ month pause could take place. If you have followed the market long enough then you realize that when everyone is in the same trade/position the market has a way of re-distributing the wealth to those who are savvy investors. Over the next 4-6 weeks there should be more price action which will allow me to get a better read for what is going to happen next.
Silver Weekly Chart – Long Term Outlook
Silver has been showing strong signs of distribution selling. Meaning the big money is moving out of this industrial and highly speculative metal. The interesting part here is that silver topped out much sooner than gold. Many times in the past silver has topped and or bottomed before the rest of the market reverses direction. So it is important to keep an eye on silver as we go forward in time because it tends to lead the market 1-2 months in advance some times.
SP500 Weekly Chart – Long Term Outlook
Stocks in general are still looking ripe for another major bull market rally. But if we do not get some follow through in the coming 1-2 months then this almost 3 year bull market could be coming an end.
Mid-Week Trend Trading Conclusion:
In short, the market as a whole is trying to recover from a strong bout of selling over the past few months. In my opinion the market is ripe for another leg higher. The reason I see higher stock prices is because decisions are being made across the pond to deal with their issues. Looking back it is similar to what the United States did in late 2008 – early 2009 just before the market bottomed.
Everyone right now seems to be saying Europe is screwed and that they are going about things in the wrong way, but if you think back that is exactly what took place in America not that long ago. And back then it was all over the news that the resolutions to fix the US would not work…. In the end, life continued, businesses continued to operate. Soon after decisions were made the stock market and commodities rallied and are still holding strong today.
Over the next week or two I am anticipating the market will provide some solid trade setups which I plan on taking advantage of using leveraged ETFS. During the volatile sideways market in August through till now I have navigated my subscribers using both bull and bear funds pocketing over 35% return in two months. If you would like to receive my pre-market morning videos, intraday updates and trade alerts visit my newsletter at: http://www.thegoldandoilguy.com/trade-money-emotions.php
A lot of eyes were watching the Slovakian Parliament around the closing bell today as they voted on the European Financial Stability Fund (EFSF). The first vote failed to pass the pending legislation, but members of the opposition party have indicated that they will vote for the bill in a second scheduled vote.
The S&P 500 E-Mini futures contract has not sold off sharply on the news, but the trap door risk for equity traders is that the second vote comes up short and the legislation fails unexpectedly. The marketplace is expecting the second vote to pass without issue and if a different scenario plays out selling pressure could become extreme potentially. With earnings season now upon us, there is plenty of headline risk to go around and this Slovakian situation just adds more complexity to the news flow.
We have seen the S&P 500 Index rally more than 10% in five trading sessions which could potentially mean we have more downside work to accomplish before probing higher. The flip side of that argument is that prices continue to rally and push towards key resistance levels overhead. At this point in time, I do not have an edge for a directional trade so I am sitting on the sidelines presently. I do have a few time decay based trades in place, but they do not have a directional bias so my book is flat here.
The S&P 500 is a tough buy after a 10% rally in such a short period of time, but the strength and momentum are tough to short. The buyers seem to be higher and the sellers appear to be lower which complicates a potential entry even further. Presently there appears to be two possible scenarios:
Bullish Scenario
The daily chart of the S&P 500 Index is shown below with key overhead resistance levels illustrated on the chart and the potential price action in coming days:
Bearish Scenario
The daily chart of the S&P 500 Index is shown below with key support levels and the potential price action if price works lower:
Overall, I do not have a real edge on the S&P 500 at this point. A pullback makes some sense here, but defined risk metrics and a trading plan must be used to reduce risk. Regardless of the price direction traders are considering, this is a situation where proper position sizing and stop orders can allow a trader to take on a defined risk that he/she is comfortable with.
This market has been tough to trade for several weeks. The price action has been choppy and volatility levels have been elevated since the early part of August. This type of market environment chops up a lot of traders and it sucks bulls and bears into the price action late in the game opening the door for potentially devastating losses if risk is not properly defined. My Trading partner Chris Vermeulen pocketed over 38% gain during these choppy times using bull and bear ETFs with is subscribers.
As an option trader familiar with a variety of spreads, recently I have been utilizing the elevated volatility levels to sell option premium and use the passage of time as a primary profit engine for my open positions. Currently I have 3 open positions which are all taking advantage of the passage of time as a profit engine.
Back on 9/26 I entered a $DIA Iron Condor Spread to take advantage of heightened volatility and capitalize on time decay leading up to the October monthly option expiration. On 10/06 I was able to close the $DIA position to lock in 15% based on maximum risk. Even though price action was excessively volatile during the past several weeks, my $DIA trade was never a major concern in terms of price action. No adjustments were necessary and members and I pocketed some relatively quick money watching the days pass by.
Gold Analysis
The recent price action in gold has been equally as tough to trade as the S&P 500 Index. After rallying sharply into early September, gold prices plummeted and price action has been consolidating ever since. Similar to the price action in the S&P 500, gold prices have just chopped around for several weeks. Gold is currently trading in a bear flag formation which if triggered could result in additional downside.
In the short-term more downside is always possible, but in the longer-term I think higher prices are probable for both gold and silver as this money printing binge will one day end and inflationary pressures may present themselves at that time. The weekly chart of gold futures is shown below:
As can be seen above, gold has traded in a long term rising channel for over a year. Back in August and September gold prices broke out to the upside of the rising channel and went parabolic. In the beginning of September, gold prices sold off sharply back down into the previous rising channel. As it stands right now, gold prices remain near the upper resistance level of that channel and have not tested the lower support line since February.
If gold prices do begin to rollover in the days and weeks ahead, a logical entry point would be a test of the lower channel. The price level I would be watching for would be around $1,500 an ounce. If we get to that area, I would not be shocked to see an overthrow of that support level and a test of the 1,480 price level before reversing to the upside.
The other side of this story is that the U.S. Dollar Index falls out of favor again and its price gets crushed. If the U.S. Dollar gets hammered lower, it would make sense that U.S. domestic equities would rally along with other risk assets such as gold, silver, and oil. Right now I do not have a clear short term bias, but in the intermediate to longer term cycles I remain quite bullish. If the gold price does work back down to that support level, I will be looking to get long. Another possible long entry would present itself on a breakout to the upside back out of the upward sloping channel.
Gold is quite volatile and is impacted by a litany of outside forces such as foreign currency and the U.S. Dollar. For right now the short term bias could be to the downside, but when this period of malaise in the yellow metal ends the next bullish phase of this move higher is going to be quite strong.
As I have said many times, sometimes the best trade is no trade at all. Right now I do not have an edge in either the S&P 500 or gold so I am just going to sit and watch price action patiently while looking for high probability, low risk setups to emerge.
Subscribers of OTS have pocketed more than 150% return in the past two months. If you’d like to stay ahead of the market using My Low Risk Option Strategies and Trades check out OTS at:www.optionstradingsignals.com/profitable-options-solutions.php and take advantage of our free occasional trade ideas and our free options trading strategy book.
Since touching $1,535 briefly on Monday, gold prices have rallied and even stabilized above $1600. Silver, which touched near $26 on Monday, has climbed back above $30. The precious metals seem to be at the whims of Europe and a strengthening US dollar. Furthermore, Germany (Europe’s economic powerhouse), does not appear to be pleased with the latest so-called sovereign debt crisis solution.
Hopes surfaced earlier this week of a plan to recapitalize Euro banks via the European Financial Stability Facility (EFSF). Talks include the EFSF being leveraged in order to provide more resources without having to receive approval by national parliaments. This caused the euro to strengthen and the dollar to weaken, which gave way to a strong gold and silver rally. After the leverage EFSF plan took center stage though, German finance minister, Wolfgang Schauble was not a happy camper. He said, “I don’t understand how anyone in the European Commission can have such a stupid idea. The result would be to endanger the AAA sovereign debt ratings of other member states. It makes no sense.” Now, gold and silver prices appear to be in a holding pattern as they trade sideways, awaiting the next development from Europe.
Although gold and silver can experience extreme price moves, the recent volatility with the Europe circus has not deterred most precious metal investors. Reuters reports that the physical gold holdings by the SPDR Gold Trust decreased by less than 1% during the recent gold slump. The article goes on to state, “The minor dip in holdings is remarkable, because many traders had initially feared that the advent of precious metal ETFs-which five years ago opened up the gold market to many retail and institutional customers by making it as easy to trade as stocks-would inject more volatility into markets. Instead, those same investors appear to be holding firm to the view that gold is a better long-term bet with the euro debt crisis and a sputtering US economy far from over.” Precious metal ETFs are not the only way investors are playing gold and silver. Many investors looking to protect themselves from a declining US dollar or global uncertainties also invest in physical bullion. APMEX, a leading gold and silver bullion dealer, has seen an increase in demand despite the pullback in spot prices. Last week, the online dealer had nearly 10,000 one ounce silver sunshine rounds. However, as metal investors continue to buy at lower prices, APMEX’s current supply of the popular silver rounds have dwindled down to less than 3,000.
Even though people have called into question gold’s safe haven status due to the recent US dollar strength, gold is still attracting buyers. Director of metals trading at Vision Financial Markets, David Meger said, “People are not going to be easily squeezed out of their investment based on longer-term, positive bias toward gold. It’s not a mentality among funds and individual investors that’s going to be easily shaken. We really have to see a dramatic fundamental change here to change the overall investment view that gold is a safe haven. We have seen an aggressive price decline, but fundamentally I don’t believe much has changed.”
Over the past week precious metal investors have had a wakeup call from their big shiny nest eggs. Last week’s free fall in both gold and silver spot prices was enough to get investors into a panic. More on this in a minute though…
The fall was triggered by three key factors which caused the powerful move down. The first factor is based on pure technical analysis (price and volume patterns). Because the metals had such a strong run up this summer and prices had moved to far too fast, it is only natural so see price correct back to a normal price level. In general any investment that surges in one direction in a short period of time almost always falls back down shortly after. As I stated in my weekly report on August 31st, “gold is forming a topping pattern and all investors should take profits or tighten protective stops (exit orders)”.Three days later gold popped to the new high completing the pattern and was quickly sold off which continues to unfolding as we speak from $1920 down to $1532 in only a couple weeks.
The second factor which I think had the most power behind the drop were the margin requirements changes. This new rule literally overnight caused traders and investors holding to much of the metals in their account to liquidate (sell) their positions without having any say in the matter. That is when the most damage was done to the price of gold and silver.
The key factor was the US Dollar which rocketed higher and adding a lot of pressure to the metals. I also covered this in my Aug 31st report in detail. Overall, past few years we have seen both gold and silver move in opposite direction of the dollar. I don’t expect that to change much going forward. Back in August the US Dollar was coiling (building power) and it was only a matter of time before it would explode to the up side and rallied. This high probability move in the dollar was what triggered me to exit our long gold positions shortly after. I expected the dollar rally to last a month or more and that means we would see a lot of pressure on equities and metals going forward.
Now keep in mind, if Greece or other countries continue to get worse then we could see the dollar and gold move higher together as they are seen as the safe haven at this time. But with the nature of the two I am anticipating a rising dollar and sideways trading range for gold.
Ok, so back to precious metals investor sentiment…
Last Friday and all of this week I have been getting emails from traders and friends saying they are going to sell their gold and silver because they are concerned metals will continue to fall and because many of them are now losing money after chasing prices higher through the summer. The good news is that one of my best indicators for helping to time market tops and bottoms is to just read my emails and answer the phone. During market tops, generally the final month when prices are soaring to new highs every day/week is when everyone contacts me and says they just bought gold or are about to buy more gold cause it’s such a great investment. Once I start getting 2-5 of these messages a day alarms start going off in my head. This works the same with market bottoms. So with everyone now in a panic and selling their positions I feel we are darn close to one if we did not see it already…
Let’s take a look at the charts…
Silver Spot / Futures Price Chart
As you can see on the hard right edge silver is forming a very similar pattern which happened this past spring. I would like to note that this type of pattern is typical with extreme market selloffs as to how they generally bottom. I am anticipating silver trades in this range for a couple months and that we could see lower prices in the near term. But my upside target for silver in the coming few months is the $35-$36 level.
Gold Spot / Futures Price Chart
Gold is doing much the same as silver but I have noticed that when gold falls hard the second dip generally does not make a new low as often. If we do get a new low, all the better for buying on the dip but overall I feel gold should trade sideways for a couple months. My upside target for gold is the $1750-$1775 area.
US Dollar Index Price Chart
The Dollar index is looking ripe for another bounce and possibly another rally to new highs in the coming week. If this happens then we should see the SP500 short position (SDS) which we took Tuesday afternoon (Sept 27th) to continue rocketing another 5-8% in our favour again.
Mid-Week Trading Conclusion:
In short, I feel the US dollar is going to continue higher and that will put the most pressure on stocks, oil and silver. Depending how things evolve overseas gold could hold up and possibly rise with the dollar.
So far subscribers have pocketed over 40% gains this month using ETFs on the SP500, Dollar and Oil and are holding another winning trade in the SDS etf taking partial profits today. If you would like learn more about etf trading and receive my daily pre-market videos, intraday updates and detailed trade alerts which even the most novice trader can follow then join my free trading education newsletter and my premium trading service here: http://www.thegoldandoilguy.com/trade-money-emotions.php
Gold bulls and inquiring minds are perplexed by last week’s mayhem in the precious metals markets. In addition to gold and silver, copper prices also went into free fall last week which is an ominous sign for the broader economy in general. We live in interesting times as geopolitical uncertainty, social acrimony, and financial collapse shape the world around us.
The situation in Europe continues to worsen and central banks and wealthy individuals are trying to find safe havens to protect their wealth. Most gold bugs believed that gold and silver would be the answer, but in this environment that hypothesis did not play out. In addition, the Federal Reserve came out with operation twist which market participants despised. Since the 3rd round of Quantitative Easing was not announced, risk assets such as the S&P 500, gold, and silver sold off sharply.
Many gold investors believed that gold is a “safety” trade. I would agree with them if the objective is to remain “safe” from ever rising inflation. In a “run for the exits” sell off caused by deflationary pressure and debt destruction, gold will generally show relative strength versus equities. However, I would remind readers that during the deflationary period back in 2008, gold held up far better than the S&P 500, but prices were volatile.
The gold futures chart from 2008 is shown below:
As can be seen from the chart above, gold futures were volatile throughout 2008 with the March high point representing a 19.83% gain for the year. The low point for gold futures in 2008 was in October and represented a loss of 21.07%. The total return for gold futures in 2008 was 1.94%. Clearly gold futures showed volatility throughout 2008, but gold clearly outperformed the S&P 500 during the same period of time.
The S&P 500 was lower by 37% in 2008, thus gold was clearly the safer asset during 2008 in terms of return. However, one asset class was safer still and had considerably less volatility . . . the U.S. Dollar. In 2008, the U.S. Dollar index futures closed the year with gains around 8.44% with far less volatility than gold or the S&P 500. I am pointing this out to readers because a similar situation is unfolding presently.
Moving forward to the present, the U.S. Dollar Index futures have put on an impressive rally that started back on August 30, 2011. Since August 30th, the Dollar Index futures are trading higher by around 7%. As it turns out, on August 31st I entered a long call ratio spread using the UUP ETF with members of my service and we were able to lock in a gain of around 30% recently.
The daily chart of the U.S. Dollar Index futures is shown below:
All of the calls for hyperinflation in 2011 and a massive crisis in the U.S. Dollar are not coming to fruition. In fact, the opposite is occurring as deflationary pressures are helping force the U.S. Dollar higher. I would point out that the majority of economists and analysts were all predicting hyperinflation for several years and so far they have been wrong. Gold nor any other asset can rally forever, but long term investors must understand that even during a raging bull market corrections and pullbacks are commonplace and healthy.
I want to point out that I sent out multiple articles warning about the possibility that gold prices could sell off or correct dramatically. In every instance, my email inbox was littered with hate mail and vitriolic remarks from gold bugs. Back on August 29th, I wrote the following in my article, What Could Lie Ahead for the S&P 500 and Gold:
“There is an ominous pattern starting to form on the gold daily chart which if it is carved out and triggered, it could produce the next leg of this selloff.”
The daily chart of gold is shown below:
“While it is far too early to determine if a head and shoulders pattern will be carved out or if lower prices take place, I am of the opinion that this selloff will offer an attractive entry point for longer term investors. At this point it is a bit too early to get involved, but if my analysis is accurate the next leg of the gold bull market will be potentially extreme.”
We are seeing that process unfold now, but as I stated in the article above the completion of this sell off is going to offer an attractive entry point for long term gold investors. While I have routinely discussed pullbacks and corrections regarding gold, I continue to be a longer term bull.
Gold has sold off sharply in the past week, but the following chart illustrates some key support levels for the yellow metal:
While gold and silver sold off sharply, the S&P 500 was also under extreme pressure. My most recent article written on September 21 prior to the Federal Reserve announcement illustrated two outcomes based on what rhetoric came from the meeting. Unfortunately for equity investors my downside prognosis is holding sway. The follow is an excerpt from my article entitled The S&P 500 & the Dollar Ahead of the Fed Statement:
“The flip side of that argument would see the S&P 500 jamming into recent resistance around the 1,230 price level. If prices rolled over and momentum picked up, a test of the recent August lows would likely transpire and could produce a breakdown and a lower low.
When looking at recent price action, the S&P 500 Index has put in a series of higher lows which is a bullish signal, however the S&P 500 has a long road ahead to break out above the 2011 highs. If the S&P 500 carves out a lower high on the S&P 500 Index at 1,230, 1,250, or even 1,280 and subsequently takes out the August lows then the secular bear will be back. The weekly chart of the S&P 500 Index ($SPX) shown below illustrates key support levels:
For now I am just going to sit in cash and wait for Mr. Market to provide me with some better clues. The trading range is pretty wide going from around 1,100 to 1,280.”
My downside scenario played out last week, but I will be watching closely to see if the S&P 500 can push below the August lows. If the August lows are taken out, we could see support come in around the 1,085 price level. If that level breaks down then the 1,008 – 1,040 price range will be in play.
The daily chart of the S&P 500 Index is shown below with the key support levels illustrated:
In closing, last week was wild in terms of price action and volatility was nearly palpable. I am anticipating some additional volatility this coming week. Gold prices could bounce as price is sitting right at the key 50 period moving average. If gold works through the 50 period moving average additional downside will be likely.
Similar to gold, if the S&P 500 is able to push through the August lows additional sellers will step in as stops will be triggered on a breach of the S&P 1,100 price level. News flow and headline risk coming out of Europe will continue to impact price action. I would also point out to members that there is a standing chance that the U.S. government could shut down as budget issues continue to manifest within the confines of the U.S. Congress.
A few weeks ago I wrote about how gold was starting to top and that everyone should expect a very sharp drop to the low $1600 area. How I came to this conclusion was though the use of inter-market analysis combining price patterns, gold futures volume, the dollar index and market sentiment. This allowed me to understand what the majority of other traders/investors were thinking and feeling. By knowing each of these market variables and crowd behavior I can accurately see into the future a few days with a high probability of success and most importantly with low downside risk.
At the time when I forecasted gold to reach the low $1600 area gold was still building the top pattern so I could not say how long a recovering would likely take nor did I know exactly when to re-enter a long position. But now that we have seen how gold arrived at my target price I can form a new forecast.
Spot Gold Price Forecast – Daily Chart:
The gold chart below clearly shows rising volatility along with my topping pattern of three surges to new highs. It was August 31st when I warned subscribers and my followers that gold was about to top and that everyone should be taking profits or at least tightening their stops to lock in gains. Only three days later gold topped and it has not stopped falling since.
On August 8th gold had a large opening gap to the upside. This means the price opened the next day much higher from where it closed the previous session. It’s important to note that gaps especially for gold almost always get filled within a couple months. Seeing this gave me a solid reason to think that gold should pullback to this level during the next big correction in price.
Also during the month of August gold had to pullbacks only to continue to make the third and final high. This told me that when the top is put in place was a very high probability that we see the price of gold drop below both of Augusts’ lows and that would trigger stop orders sending the market sharply lower.
Now that we are seeing the stops being flushed out of the market it means the majority of speculative traders have exited their positions. So speculative traders who caused the large surge in gold to take place are now out. Once all the speculative traders have exited which should take place in the coming weeks or two we can expect some type of bounce or rally. I will keep a close eye on the intraday charts for subscribers as we near a potentially major trade setup.
Where are we in this gold bull market?
Well I feel gold is more fairly priced between $1632- $1660 area. Currently gold is trading at $1660 but if things play out like I have seen in the past we just may get one more dip this week to the $1600 area before gold truly puts in a bottom. Because gold went from a new high all the way down to Friday’s panic selling washout instead of a controlled ABC correction I feel a bottom will be more of a one day event. This type of bottom carries more risk and is more difficult to time and trade. So scaling in with a small position at this level and adding on a drop to $1630 then $1600 could prove to be the safest way into a gold position.
Forward looking I see gold bottoming over the next week or two then a nice relief rally to the $1775 area. Depending on how gold arrives there will alter my next gold forecast so let’s wait and see how things unfold.
Silver I call the Un-Safe haven because to me it’s not a safe haven in the way everyone’s believes it be. I hear and see everyone including friends and family selling all their stocks and putting their money into silver. To me buying large amounts of silver with your retirement money is just ridiculous. I m sure my statement here will trigger an inbox of silver-perma-bulls (silver bugs) to send me hate mail but that’s fine as my assistant filters my emails so I don’t have to keep being reminded how rude some humans can be over an simple opinion…
Investments that can lose 25% in value within 2 days or lose 40% of it’s value in 5 months should not be traded nor invested in with large portions of anyone’s life savings, especially if you are over the age of 50 and have not proven to be a constantly profitable trader. No one can stomach losing that much of their nest egg.
That being said I do feel silver is in a similar situation as gold. I do feel a bottom is near. Silver has formed an ABC correction and the price and volume patterns seem to be in line with a typical bottoming pattern. After Friday’s massive selloff I feel silver may slide a little lower yet before putting in a bottom.
One thing to keep in mind with silver is that it is very thinly traded; there are a lot of speculative traders involved which push and pull the price to extreme levels on a regular basis. So if the broad stock market continues to sell off sharply then I expect silver to follow suit.
The price action we have seen this year for both gold and silver indicate were are just warming up for something really big to happen. It could be a massive parabolic rally to ridiculous new highs in 2012 or it could be a large unwinding of the safe havens as countries sort out their issues and the big money starts moving out of metals and into currencies and stocks.
Only time will tell and that is why I analyze the market multiple times per week to stay on top of both long term and short term trends. So if you want to keep up with current trends and trades for gold, silver, oil, bonds and the stocks market check out TGAOG at: www.thegoldandoilguy.com/trade-money-emotions.php
I got a bit of hate e-mail over the last few weeks from the Gold Bugs who thought I didn’t know what I was talking about when I forecasted a multi-month consolidation and correction in Gold was imminent. I’ve written ad nauseum about crowd behavioral patterns as they related to both stock markets and precious metals. It should not come as a surprise that Gold is continuing to drop after a 34 Fibonacci month rally from $681 to $1910 per ounce. That rally came in five clear Elliott Waves and ended with a parabolic race to the top. I consistently warned my subscribers and readers of my articles about not being caught holding the bag and to take defensive measures.
My most recent update was to simply try to figure out whether the continuing correction in Gold would take the form of an ABC pattern or an ABCDE Triangle Pattern. It is becoming more clear that the official pattern is ABC. In English it means that the first leg down from 1910 to 1702 was the “A” Wave, the rally back up to 1920 was the “B” wave. The C wave is continuing underway and one of my longstanding targets is $1643, which is a Fibonacci fractal relationship to the prior lows and highs, and also conveniently fills in a “Gap” in the Gold chart in the 1650’s.
During these 4th wave consolidation periods, it reduces sentiment back down to normal levels and lets the economics of the move in Gold catch up with the price action that was extended. The first area to watch is the re-test of $1702 spot pricing for a C wave low, but the evidence is for a further drop to $1643 before I would get too interested in trying to game Gold to the upside.
Here is the chart I sent out 9 days ago with Gold at $1837 forecasting a possible C wave continuing lower:
I’ve stayed away from either shorting Gold or going long gold while I watch and confirm the 4th wave pattern. It’s simply the smart way to go knowing that upside will be difficult to obtain and downside risks are high. It does now appear that I am eliminating the Triangle pattern and sticking with the ABC Correction with the C wave still working its way lower. If $1702 breaks, then you should expect to see 1620-1643 as next pivot low ranges.
If you’d like to stay ahead of the SP 500, Silver, and Gold trends, check out TMTF at www.MarketTrendForecast.com and take advantage of our free occasional reports or a 33% 48 hour coupon to sign up for 5-7 updates a week.
