GOLD – Short Term Risk Remains Down but Close to a Major Low

GOLD – Short Term Risk Remains Down but Close to a Major Low

Written by David Brady, Sprott Money News

BIG PICTURE

  • Another crash in stocks followed by a Fed reversal to rate cuts and QE will likely signal the peak and fall in the dollar and the bottom in Gold (and Silver).
  • As long as we remain above 1167 in Gold, I am only looking up.
  • The risk / reward at the current levels in Gold (and Silver) is heavily skewed to the upside.
  • We are heading down to a major low from which we will see a massive rally to new highs in Gold above $1400.

As shared last week, the “ideal” scenarios for the bottom in Gold are as follows:

  • Daily RSI down to ~30 or below
  • Daily MACD Line down to August levels around -15
  • Spot DSI in the teens or lower
  • 21-day moving average DSI in the twenties, maintaining the overall uptrend
  • Funds are short, Banks are long

TREND

The daily trend clearly remains down for now with lower and lower highs. A break of 1304 followed by a higher low above 1266 would be the minimum requirements for a change in trend to the upside. 

SENTIMENT

Ideally, would like to see spot DSI in the teens or single digits and the 21D MA DSI down to low 20s (maintaining the trend of higher lows) for the bottom to be in.

  • Spot: Hit new low of 21 on Wednesday.
  • 21D MA: Peaked at 74 on Feb 27, then again at 68.5 on April 10 (lower high), and is now down to 35.6.

TECHNICALS

Daily

Would like to see MACD Line closer to Aug’18 lows before the bottom is reached, circa -15.

Supports at 1267, 1258 and 1248. Resistance at 1290.

Banks may try to take out stops at 200-day and 200-week MAs and we fall to ~1225 before the bottom is in.

Massive cluster of Fibonacci support from 1200-1223.

Failed breakout of its bull flag was extremely bearish, supporting the case for lower lows.

Weekly

Bounce back up to downtrend line at ~1290 possible.

Overall, still see lower in both the RSI (50) and MACD Line once any bounce is completed. 

INTER-MARKET ANALYSIS

Given the recent inverse relationship with the S&P, expect continuation of the downside in Gold until the S&P peaks and falls below 2785. Bearish sentiment in equities has increased significantly recently which does not bode well for an immediate drop.

POSITIONING

Funds went from -34k short to +50k long in the past 3 weeks. The 6th fastest gain ever on a 3-week basis. 

Commercials went from -57k to -137k short in the past 3 weeks. One of fastest paces ever on a 3-week basis. 

It’s clear that the Banks have been setting up to squeeze out weak longs here. Given the small changes in open interest since the last COT report and the increase in the short positions, this suggests Gold has further to go on the downside yet.

CONCLUSION

Gold is still setting up for a major low. The balance of data suggests we still have lower to go but this is solely to BTFD for the rally to follow. The key support / target levels are as follows:

  • 1266 – Double bottom
  • 1258 - 200-day moving average.
  • 1248 – 200-week moving average
  • 1247 – 61.8% Fib of 1184-1348 on a ‘closing’ basis
  • 1237 – 61.8% Fib of 1167-1350 on an ‘intraday’ basis
  • 1223 – 76.4% Fib on a closing basis
  • 1210 – 76.4% Fib on an intraday basis
  • 1208 – 85.4% Fib closing
  • 1194 – 85.4% Fib intraday

I am looking for 1400+ next before Gold hits its next major peak. Only a break of 1167 “AND” a close below 1184 negate this forecast.

 

GOLD – Short Term Risk Remains Down but Close to a Major Low

Written by David Brady, Sprott Money News

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