The technical set up on Gold looks increasingly bullish and Citi's FX Technicals group continues to expect further gains. The picture on Silver also looks constructive and Citi notes, over time it may well outperform Gold. A weekly close above the $1,434, if seen, would suggest extended gains towards $1,685 and beyond. As they warn (gold bears), we may have “seen this movie” before... as late 70s deja-vu happens all over again.
Via Citi FX Technicals,
Gold: Daily chart looking very constructive
Following the hold of support just above $1,180 this chart has gone from strength to strength with a turn higher that took us back above both the 55 day moving average and the downward sloping trend line decisively.
It is now approaching the 200 day moving average which stands at $1,305.50. A close above here would further support our view of a move to test major resistance at $1,434 with interim resistance around the October 2013 high at $1,362
The $1,434 level is a potential neckline for a double bottom formation off the $1,180.50-1,182.50 level. A weekly close above here, if seen, would suggest extended gains towards $1,685+
As the chart below shows, we may have “seen this movie” before
Gold: Weekly chart is setting up like 2012
Between December 2011 and May 2012 we saw Gold form a double bottom and post a bullish weekly reversal 2 weeks after the 2nd low was posted. That ultimately led to a test of the double bottom neckline by October 2012 albeit that it was not able to break above that resistance on a weekly close basis ($1,791)
This time around we have also seen a double bottom (Between June and Dec 2013) with a bullish weekly reversal posted on the same week that the 2nd low was put in.
We fully expect that Gold has the potential to once again test the neckline of a double bottom which stands at $1,434)
A weekly close above here, if seen, would suggest (as noted above) extended gains towards $1,685+
Gold : Monthly chart still looks similar to the 1970’s
In 1974-1976 as the equity market surged Gold corrected sharply in a move that took it 14% below the 55 month moving average.
In 2011-2013 as the equity market surged Gold corrected sharply in a move that took it 14% below the 55 month moving average.
In fact the correction in 1974-1976 was greater in real terms than that seen today (44% versus 29%)
Between 1976 and early 1980 Gold surged higher again in an even stronger uptrend than that seen from 1969-1974
If you ignore the surge seen in Dec 1979-Jan 1980 (prompted by the U.S.S.R. invasion of Afghanistan) both impulsive moves (1969-1974 and 1976-1980) saw Gold multiply by a factor of around 5 times. The rally from 2001 to 2011 (Much longer in time) saw gold multiply by a factor of over 7 times.
A trend from the 2001 low of similar percentage (excluding the USSR invasion pop) as seen in 1969-1980 would suggest we could ultimately see a level of $3,500…maybe as early as late 2016/early 2017.
Why is the move much slower this time? Prior to the sharp move from 1970-1980 Gold was suppressed /controlled in a $15 range for the prior 50 years ($20-$35). When it was allowed to float ‘freely” the pressure “cooker effect” kicked in to compensate for that period. For more than 30 years leading into 2001 Gold has been relatively freely floating (Albeit with elements of Central Bank interference). As a consequence the “pressure cooker effect” to create really sharp moves over a very short timeframe was not in place this time. While this has still led to significant gains in the first leg higher it has been over a much longer time frame. In contrast the 2nd rally in 1976-1980 came after gold had already had its “pressure cooker break” and had been floating for about 6 years. This suggests that a renewed rally in Gold now could well be more similar in time frame to the 1976-1980 move.
Silver: daily chart setting up nicely.
Silver has also broken above the downward sloping trend line and the 55 day moving average and looks to be forming a shorter term double bottom. The neckline stands at $20.60 and a break would suggest a move towards $22 which would take it above the 200 day moving average at $21.07.
Further resistance is met at $23.09 (October 2013 high) and then the most important level is the longer term double bottom neckline at $25.10.
A weekly close above here, if seen, would suggest extended gains towards $31+
If both the Gold and Silver longer term double bottoms were completed and targets reached ($1,685 in Gold and $31 in Silver) that would suggest a Gold versus Silver ratio of about 54 compared to the present level of about 64 (So Silver to outperform Gold by about 50% - A move of about 45% in Silver versus 30% in Gold)
Silver: Weekly chart also setting up in a similar fashion to 2012
In 2012 Silver did rally strongly off its base but just fell short of the neckline around $37.50 before falling again.
A decisive break above the $20.60 level (Weekly close) should yield an acceleration towards the important $25.10 level
However, it is a weekly close above this level, if seen, that would suggest the much bigger move towards $31+
Silver: Monthly chart also shows big resistance in the $26-26.50 area
This is where the downward sloping trend line, the horizontal resistance and the 55 month moving average converge.
Regaining these levels on a monthly close basis would suggest a very constructive outlook and make that $31 area look very achievable.
Gold/Silver ratio daily chart: Set to turn lower?
The bounce in this ratio since August last year has so far peaked at the 76.4% pullback of the July-August fall.
Initial support is met between 61.70-62.60 (Rising trend line and 55/200 day moving averages.
More important support stands between 57.63 and 57.84 (Pivot off which the 76.4% pullback was posted and channel base). A close below here would suggest an acceleration of losses to the downside
Gold/Silver ratio weekly chart: Move to 200 week moving average a danger?
Further support could be seen at the 55 week moving average which stands at 60.62. In addition there is a decent gap to the 22 week moving average at 54.62 (Very similar to the level of 54 mentioned above if our extended targets for Gold and silver were achieved)