This weeks update on the Gold Market

I am going to try to update my analysis on the gold market weekly, as I feel we are right at the cusp of a historic move higher.  Let's get down to it with the Gold chart first...

First we can see the major support area at 1200 and the major resistance we can't yet get above at 1400.  There is also support around 1260, which we recently held just above that level and have moved up to 1325, just below more resistance near 1350.   Looking closer we can see that for a year now MACD has been trending higher while price was moving lower or sideways.  This sort of positive divergence often spells out a major bottom.  We can see that it has just crossed over it's signal line and is headed higher, just shy of the all important zero line.  (*Note I use 12,26, and 5 settings on MACD.  It's standard except for 5 on the signal line, which keeps the signal line tighter to the MACD line giving me slightly quicker signals, which I find useful as MACD is a very lagging indicator to begin with)  So MACD has crossed and is near crossing the zero line, and we can see that the 10 and 20 day MA's are close to crossing higher as well right at the same level in which the 50 day MA sits.  So, our signals are looking nice, as if we might be getting ready to move very soon, but I am not enthusiastic about the move higher we've had the last few days.  It has not really had much fuel behind it and I believe it might lose momentum and we can see a retest of the 1260 area.  If we read between the lines of the COT reports we can see that majority of the rally we had from the lows around Christmas was hedge fund short covering, which is fine, but there was a lack of people buying the market from the long side.  When short covering drys up, so does the rally unless you can spark enough momentum to make those shorts want to jump in long now.  As the rally began to slip at just under 1400 one month ago, those same hedge funds are piling in short again.  Asian buying that sparked the rally as we hit 1200 around Christmas, is not chasing price up to 1400, so now the story is the hedge funds will be pushing price lower until it is countered by some strong buying.  At what level will we find that?  We will have to wait and see but I suspect we will see good support for the price near 1260.  The moral of the story behind the COT analysis is that Gold has yet to convince anyone that the move lower is over.  And until that begins to happen, we will have headwinds.

Let's take a quick look at silver too...

Basically the same as gold.  We can see major support at 19, and major resistance around 25.  So far resistance at 22 has held us back.  MACD has the same uptrend and has just crossed the signal line, headed higher towards the zero line. We also have this wedge formation happening here that could add some extra fuel to the rally when broken.  One major reason in my analysis that's causing me to think we are not quite there yet has been the lack of performance on the part of silver.  When its time for the metals to really shine, silver should be out performing gold fairly significantly, which we have not really seen happen for more than a day or two.

Now on the the GDXJ

Same basic look to it.  MACD is trending higher for a year, close to breaking above zero line.  But notice the pitiful attempt at a rally we have had recently.  Indicators are still moving higher, and the 10 and 20 day MA's look ready to cross but again, i think it lacks strength and that this is likely a fake out.  This recent rally feels similar to the one in Oct (Blue circle)  Which almost crossed higher than faded out.  (And was then drastically exacerbated in the thin liquidity of the holidays)  I think we need to hit a level where value buying floods into the miners and I think that level may be just a little lower.

All in all, if I am right and we head lower first, look for us to establish the low by the end of next week or early into the following week.  Then we can look for a buy signal to occur by the beginning of May and expect the rally to last likely all month topping out around 1400 on gold, 25 on silver and near 50 on the GDXJ within the first 2 weeks of June.  I doubt after such a move higher, that we break that level and confirm the new bull market.  After 2 years of being brutalized, I think the market will need more convincing.  We can probably expect our usual summer doldrums till the end of Aug, when things should heat up.  Gold will probably stay range bound in those months between 1300-1400.  Silver from 20-25 and GDXJ from 40-50 region.  It will likely be our customary Fall rally that breaks things above those resistance levels.  I would be looking for 1550-1650 on Gold, about 28-32 on Silver, and about 70-80 on the GDXJ to then be achieved by years end.

Watch the next few days for a resolve here, and be ready to buy if we get the signals to do so.

-Jonathan M Mergott