Monday, 22 December 2014

U.S. dollar belts gold

Something interesting is happening with the U.S. dollar that may explain gold's profound weakness on Monday

On its monthly chart, the U.S. dollar just cleared its 200-month moving average, a huge technical milestone.

It's my view that this technical development in the dollar is likely what caused gold to sink on Monday. The die-hard goldbugs just don't believe the dollar rally is real. If reality is a bug -- the bug just hit the windshield.

If the breakout in the U.S. dollar sticks, it could spell more pain ahead for the precious metals complex, as a rising dollar usually poses a headwind for gold.

The dollar is overbought on the monthly chart -- but in a strong move like the dollar appears to be in the throes of, the dollar can sometimes stay overbought longer than most think possible.

Gold's slump puts descending coil back in play

With gold's slump back under the key $1186 level on Monday, the descending coil is back in play, especially if gold closes under the lower boundary of the coil.

The action can be seen in the chart of the gold ETF GLD, and my proxy for the gold action:

I'm writing well before the stock market close. A lot can still happen.

Thursday, 18 December 2014

Gold's decision

The recent gold action is among the most wild and unpredictable episodes I can recall.

Gold is up some $10 as I write (well before the close). Gold continues to press -- and press hard -- against the underside of a key support-turned-resistance line that I have been monitoring for the past few weeks. Recently, gold has been fighting with this line, at times trading above it, then below it. Now it's underneath, trying again to get back above it.

This action can be seen the chart of the gold ETF GLD, my proxy for the gold action:

The more times this line is tested and interacted with, the more important it becomes.

Gold appears to be in the midst of a critical decision here: it appears to be making up its mind whether it will overcome the overhead resistance and reverse higher -- or let the resistance get the better of it, and decline.

Tuesday, 16 December 2014

Is gold acting like a cornered animal?

The miners, especially the juniors, are starting to fall apart again. The gold ETF GLD saw fresh outflows of physical gold in its vault holdings, suggesting sophisticated investors are using the current relative strength to sell.

But gold stubbornly holds above the key $1186 level. So what is gold up to? In overnight trading gold bolted more than $25, then proceeded to give it all back as the session opened in North America.

Sometimes the markets act like a living organism. To me, gold is acting like a cornered animal, or possibly a drowning man. It's frantically flailing and fighting -- so far to little avail. But a cornered animal can be very, very dangerous, as many bears with tight stops learned today.

With Tuesday's wild whipsaw, gold closed back under a key support-turned-resistance line I have been watching with curiosity for weeks. This action can be seen in the chart of the gold ETF GLD, and my proxy for the gold action:

That gold is trading back under his key resistance line is ominous for the bulls. At least that how it looks to me. 

With the sinking miners, and the ongoing physical gold draw-down from the vaults of the gold ETF GLD, and now with gold/GLD trading under a key support line -- the gold bulls have their work cut out for them. 

And gold itself seems to be acting almost like it's fighting for its life. 

Monday, 15 December 2014

Did gold just blink?

Here is a chart of the gold ETF GLD and my proxy for the gold action:

The chart shows the action well before the stock market close. A lot can still happen.

Friday, 12 December 2014

The false signal

There is a conundrum in the precious metals markets. The metals -- gold and silver -- are relatively stable, especially in light of the weakness across most of the commodity sector.

Despite the notable strength in gold and silver, the price action in the gold and silver miners continues to deteriorate. The junior miner ETF GDXJ is getting close to re-testing its all-time lows, this despite gold being some $80 above its recent lows.

So either the miners or the metals are apparently giving a false signal here.  Which one is it?

As readers know, my take is that it is more likely the metals are giving the false signal. That's because the miners tend to lead the metals -- especially the juniors. And they are not. Could I turn out to be wrong? Absolutely.

I monitor a number of precious metals chat boards, and it seems to me that traders in particular are extremely confused. A large number of die-hard bears appear to have been flushed out of the market due to the recent wild action. A surprising share of bears (at least I find it surprising) have have even turned bullish.

I've been involved heavily in the precious metals markets since 2001, just the bull market was starting to take off. I've seen it all. The current set-up in the precious metals markets sure seems to me to have the characteristic feel of being a likely false upside move. The mining indexes -- especially the junior mining index GDXJ -- appear mighty close to giving a major sell signal.

Although the key chart support for GDXJ hasn't broken yet, my key trading indicators for GDXJ and GDX closed out Friday's session with all my key indicators being on sell signals in unison. It wouldn't take much upside to turn some of the indicators back up, but the fact they closed the week all in a bearish posture may be noteworthy. Unless something dramatic happens soon (and it could), my models are suggesting the mining indexes may be on the verge of yet another breakdown.

Gold has been holding up reasonably well of late. But there is a possible rising wedge formation that may be unfolding in the chart. This chart of the gold ETF GLD, my proxy for the gold action, shows this possible formation -- which tends to have bearish implications. It may just be a shape, and nothing more... However, if the bearish rising wedge is valid, it would explain the soft action in the mining indexes compared to gold's more robust behaviour.

Why might gold be forming a rising wedge? Well, the U.S. Federal Reserve's federal open market committee is meeting next week (December 16-17). There is some speculation the committee may remove the phase "considerable time" that describes their outlook for the timing of the next rate hike. If that phrase is removed from the minutes of the meeting, it would signal a rate hike may be coming sooner rather than later, which would not likely be gold-supportive. If the phrase is retained, gold may get a boost.  The rising wedge may be gold's way of hedging its bets.

As usual, time will tell.