Citi: Are Gold And Silver Finding A Bottom?

Tyler Durden's picture

Gold and Silver appear to be in the process of finding a bottom; however, the price action could continue to be choppy in the coming weeks. Ultimately Citi's FX Technicals group, as the following charts suggest, expect both precious metals to move much higher in the long term with the potential for Silver to be the outperformer, as was the case from 2008 to 2011.

Via Citi FX Technicals,

Are Gold and Silver finding a bottom?

Gold and Silver appear to be in the process of finding a bottom; however, the price action could continue to be choppy in the coming weeks. Ultimately we expect both precious metals to move much higher in the long term with the potential for Silver to be the outperformer, as was the case from 2008 to 2011.

Our original target for this Gold correction was $1,260, which was the target of the double top. This would also have resulted in the same high to low move on a percentage basis as seen in March – October 2008.

Gold has overshot that target, though only slightly (the 2008 high to low correction was 34% while this one has been 36%). The bottoming process in 2008 can still serve as a template for what might still come for Gold:

  • After rallying through September-October 2008, Gold made one final push down to a low 7.4% lower than the previous one
  • After rallying through April, Gold has made a push lower and similar move to the last one in 2008 would suggest a bottom would be put in at $1,224. The low so far has been $1,221 and consolidation seems to be taking place.

Daily momentum is also at the most stretched level seen since the Gold correction in 2008

One important thing to note is that after posting the low of the correction on October 24, 2008, Gold did not immediately shoot up in a V-shaped bottom. Rather, it consolidated over the next 2-3 weeks and did not begin the next move higher until after turning off of the 76.4% retracement of the bounce off the lows and then breaking through the pivot. This suggests that if $1,221 is the low, we may still see some choppiness in the price action over the next few weeks.

Our only concern at this point is that the correction in Gold may be more like that seen from 1974-1976

The high to low correction during that time was 44% and a similar correction this time would suggest a Gold price closer to the $1,050 area. The timing would be closer in similarity as well as the correction in the 1970s took place over 1 year and 8 months whereas this one has already taken place over 1 year and 10 months (meanwhile the 2008 correction lasted only 7 months).

The most important thing to note is that whether we are seeing a pattern more like 2008 or the 1970s, we do not see this as just the beginning of a bear market in Gold; rather, this should simply be another correction in the upward trend. This would be similar to what we saw in both of those time periods (a deep correction setting up for the next move higher which would take Gold higher by multiples). We still remain of the bias that Gold will find a bottom soon and that in doing so it will form the base for a new leg higher which can take Gold to our target of $3,400 - $3,500 by 2016. Before we get there, though, we may need to see more stresses to riskier asset markets. As we have previously seen, moves higher in Gold are accelerated by either:

  • Global stresses - Europe and China come to mind as potential catalysts, with the possibility of another Euro crisis becoming more real as highlighted in Chart of the Week. The potential for tapering by the Fed has shown just how sensitive asset markets are and how easily panic selling can take place.
  • Increasing balance sheets of Central Banks / debt levels of governments - “taper talk” is still just talk and even when/should it begin, there is no plan to actually reduce the size of the Fed’s balance sheet; meanwhile, other major Central Banks are still in the process of accommodating or increasing their balance sheets. On the debt side, there is no indication that any major economy is actually reducing the size of outstanding debt any time soon. This might actually suggest that when Gold begins to rally again, the price change in other currencies may be greater than that in USD (a topic we will likely revisit in the future).

These dynamics continue to suggest to us that the long term trend of higher Gold prices is very much intact.

Silver should also follow suit as it attempts to find a bottom. Once it recovers, it may actually be the outperformer of the two…

As with Gold, we think the correction in Silver should end up being similar in magnitude to that seen in 2008. The 60% correction would suggest Silver bottoming around $19.75, though it has already overshot that level. However, as with Gold, our bias is that Silver is in the process of bottoming before a more aggressive move higher, such as that seen after the correction in 2008. That suggests a move in Silver to over $100 by 2016.

The Gold/Silver ratio shows that in the correction of 2008, Silver severely underperformed Gold (correcting 60% versus 34%). Then as both moved higher, Silver outperformed, rallying 488% versus 181% for Gold.

This correction again has seen Gold do better (less badly?) and the ratio is approaching resistance around 67, the 76.4% retracement of the 2009-2011 move lower. If Gold and Silver are bottoming, as we expect, than it would not be surprising for the ratio to begin to turn around the resistance area as well. This would mean Silver could once again be the outperformer over the next few years.

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LetThemEatRand's picture

"The Bernanke is the only bottom I'll ever need.  Go POMO (or DOMA or whatever)." -- Obama, Greenspan, The Bush, et al.

Groundhog Day's picture

The price action of the miners was interesting, a least today.  Price of gold tumbled , yet miners were all up for the most part.  Perhaps the capitulation is close,  i hope not, i have more fiat to convert and would love to see 1000

Stumpy's picture

Ah man that hurts. And the comments... "My stack is a shiny as ever". I needed that, thanks.

ACP's picture

Funny thing is, for hundreds of years, alchemists have tried to discover how to turn lead into gold. Over the next decade, I'm sure there will be a lot of people who will need to turn their gold into lead. Hot, fully jacketed, and 3200 fps.

Skateboarder's picture

I wonder if the Ponzi takes the direction in which we will see $2500 silver and $130,000. If by then, most of the planet has not awakened yet, then you know you are living in a complete illusion.

Pound of tomatoes for $100, etc.

dryam's picture

ZH is awesome, but seriously, why would anyone give a rat's ass what a bank has to say about anything.  Please stop posting this shit.  It takes away from the plethora of really great articles.  Less is more.

kito's picture

Yes.....we need more Simon black articles.....

AllThatGlitters's picture

Is Citi setting up longs that have been waiting for another smackdown?

Their muppets are buying that pump tonight.

Gold and Silver reversed the opening smackdown in Asia.  

Live Spot Gold: http://www.pmbull.com/gold-price/

Live Spot Silver: http://www.pmbull.com/silver-price/

A bank wants to discredit gold and silver by pumping it, before another smackdown?

Or is Citi now sufficiently long to start the pump?

Or is Citi trying to take on JPM?  

Maybe the battle between the banks is beginning. :-)

CheapBastard's picture

The long term problem is debt. Debt of the individuals, corporations, municipalites and central governments. The Fed and CBs don't care about th efirst group and not too much about the second (unless you are GM or one of the Big 7 Bankers).

The municipal debt...so-so.

However, the Gubmint is their survval so the CBs will work hard holding rates down (and the currency weak) for years to come. Higher rates may not be possible since the high debt service would cause serious proiblems -- like inability to pay (insolvency) or immiediate debasement a la Venazuela or Argentina.

Thus, long term these undervalued hard assets will rise as currencies are  continually devalued.

gmrpeabody's picture

My kids are calling me "bagholder"..., I wonder what they mean?

malikai's picture

A yes, Lead Into Gold. Not just Alchemists, great artists as well.

http://www.youtube.com/watch?v=Ws1YbZbhdl4

overmedicatedundersexed's picture

as an ave investor I will only buy PM's when they hit new highs...

Bearwagon's picture

That is possible. Don't try this at home! Lead can be turned into gold, but it will be mostly unstable and decay relatively fast.

zerozulu's picture

Alchemists were trying the wrong material. They should have tried paper. It turns in to gold.

Silveramada's picture

we are close to othe same correction of 2008, after that the rally in PM's was outstanding...

http://zysites.com/silververitas/

James_Cole's picture

Doesn't anyone read anymore...

chief among them is without doubt the firm's outlook on gold which they see at $2400 in the second half of 2012, and moving "toward $3400 over the next 2 years or so." So for those looking at today's price action, consider it an opportunity to roll out of paper exposure and into gold, because the more deflationary the environment gets, the more eager the central planning cabal will be to add a zero 

LetThemEatRand's picture

Time will tell.  I wouldn't wipe my ass with JPM toilet paper.

James_Cole's picture

Citi is worse than JPM in my opinion but that's splitting hairs.

http://www.zerohedge.com/news/gold-jumps-citi-says-gold-sell-over-reiter...

according to a note just released by Citi analyst Tom Fitzpatrick, the gold correction "has run its course and a rally is now back on the cards." Granted it is not all smooth sailing - "Gold may drop to $1,550 before turning", but when the turn comes, Fitzpatrick sees it as going all the way up to $2,400. He has the following technical observations: "Only a weekly close below $1,535/oz means corrections may be deeper."

Magnix's picture

No, not just yet. Im waiting to go down much lower and Ill buy some gold coins on ebay.

malikai's picture

By the way, I'm nearly certain that Jamies toilet paper is among the best in the world.

Escapeclaws's picture

No,nobody reads. As for gold going to $2400 in the second half of 2012, don't hold your breath.

seek's picture

Hey, they still have six months. It could happen. I'd take the under, but it could.

Anyone have any doubt we'll see that figure within the next 10 years?

HulkHogan's picture

chart readers are NEVER correct.

He_Who Carried The Sun's picture

Wrong!
"Chart Readers" may well be correct (!)
but the folk who draw these funny charts

and weird lines and strange averages may be not...

I can tell you: My technical analysis of these

numbers look a lot different than ZH's and I have

"some" experience, as "they" say... hehe

joego1's picture

Joego predicts is will go down then it will go up.

Go Tribe's picture

Yeah, the word "however" is getting a lot of use these days.

bonin006's picture

I am responsible for the price action of the miners today. I had just changed my thinking to hoping they would drop more so I could pick some up cheaper, so naturally they went up instead.

(response to groundhog day - up at the top)

underman's picture

QE to infinity is all you need to know.  Now that taper is back off the table, PMs have some catching up to do!

fonzannoon's picture

Gold advice from a bankrupt bailed out institution. Priceless.

seek's picture

You can't trust any bank.

That said, I'd trust Citi's statments on PMs over JPM or GS.

I can't wait for all of them to see their balance sheets burned to cinders in the Great Reset.

kito's picture

balance sheets??? more like vertigo sheets.............................

kito's picture

im buying all the way down to 1000 fonz......started tonight................im in the club!!! whooohoooo!!!!.....

kito's picture

why so, ive been warning you of this day...............................

fonzannoon's picture

just make sure they throw in a free tin foil hat. you need it to get into the meetings.

kito's picture

fonzbrother......im already a full fledged member of the tinfoil hat club.........its just that mine is a slightly different style..........................

fonzannoon's picture

yeah good point. well nice job jumping in when supposedly everyone else is jumping out

kito's picture

well fonz, if im wrong about how gold ends, id rather pick up the metal when there is blood in the streets.....this gold drop is not the result of some deleveraging deflationary tsunami....this just smells like a fear laden correction that doesnt seem to correlate to anything in particular............

Al Huxley's picture

If you want to be a full member, though, just make sure it's the real thing and not any paper facsimile.

kito's picture

American eagles....uncirculated.....

Al Huxley's picture

Full member then.  Soon you'll be following the bullion banks' every move, watching the COTs, trying to figure out how much gold is really in Fort Knox, whether China's short paper or just buying indiscriminately behind the scenes - it's worse than taking the damned red pill.

blindman's picture

manufactured buying opportunity for insiders,
desired distribution by other means.
buy, buy, buy if u can securely do so.

vulcanraven's picture

I would rather wear a tinfoil hat than a dunce cap.

devo's picture

My brother started on this dip, too, and he's a huge paperbug. Not sure who they're scaring out.

Dre4dwolf's picture

I think the market essentially with inflation rebooted back to 2007~2009.