Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
Stock Market Brief in Count Down to US Election Result 2024 - 3rd Nov 24
Gold Stocks’ Winter Rally 2024 - 3rd Nov 24
Why Countdown to U.S. Recession is Underway - 3rd Nov 24
Stock Market Trend Forecast to Jan 2025 - 2nd Nov 24
President Donald PUMP Forecast to Win US Presidential Election 2024 - 1st Nov 24
At These Levels, Buying Silver Is Like Getting It At $5 In 2003 - 28th Oct 24
Nvidia Numero Uno Selling Shovels in the AI Gold Rush - 28th Oct 24
The Future of Online Casinos - 28th Oct 24
Panic in the Air As Stock Market Correction Delivers Deep Opps in AI Tech Stocks - 27th Oct 24
Stocks, Bitcoin, Crypto's Counting Down to President Donald Pump! - 27th Oct 24
UK Budget 2024 - What to do Before 30th Oct - Pensions and ISA's - 27th Oct 24
7 Days of Crypto Opportunities Starts NOW - 27th Oct 24
The Power Law in Venture Capital: How Visionary Investors Like Yuri Milner Have Shaped the Future - 27th Oct 24
This Points To Significantly Higher Silver Prices - 27th Oct 24
US House Prices Trend Forecast 2024 to 2026 - 11th Oct 24
US Housing Market Analysis - Immigration Drives House Prices Higher - 30th Sep 24
Stock Market October Correction - 30th Sep 24
The Folly of Tariffs and Trade Wars - 30th Sep 24
Gold: 5 principles to help you stay ahead of price turns - 30th Sep 24
The Everything Rally will Spark multi year Bull Market - 30th Sep 24
US FIXED MORTGAGES LIMITING SUPPLY - 23rd Sep 24
US Housing Market Free Equity - 23rd Sep 24
US Rate Cut FOMO In Stock Market Correction Window - 22nd Sep 24
US State Demographics - 22nd Sep 24
Gold and Silver Shine as the Fed Cuts Rates: What’s Next? - 22nd Sep 24
Stock Market Sentiment Speaks:Nothing Can Topple This Market - 22nd Sep 24
US Population Growth Rate - 17th Sep 24
Are Stocks Overheating? - 17th Sep 24
Sentiment Speaks: Silver Is At A Major Turning Point - 17th Sep 24
If The Stock Market Turn Quickly, How Bad Can Things Get? - 17th Sep 24
IMMIGRATION DRIVES HOUSE PRICES HIGHER - 12th Sep 24
Global Debt Bubble - 12th Sep 24
Gold’s Outlook CPI Data - 12th Sep 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Gold Crumbles in the Face of U.S. Dollar Strength

Commodities / Gold and Silver 2010 Feb 07, 2010 - 06:15 AM GMT

By: Clive_Maund

Commodities

Best Financial Markets Analysis ArticleGold performed as predicted in the last update, rallying up to the top of its Descending Triangle before reversing and crashing support at the bottom of the Triangle on Thursday. Many traders were startled by the magnitude of the Thursday's $45 drop. It was a bearish development for reasons we will come to shortly, but paradoxically it was immediately followed by a "Reversal Day" on Friday, which is a sign that the steep drop has exhausted itself - for now. Bulls, who were poleaxed by Thursday's plunge, are already dancing on the rooftops proclaiming that the "correction" is over as a result of the recovery late on Friday. So what are we to make of this seemingly contradictory market action? Let's see what the chart is saying.


On the 2-year plus chart for gold we can see the rally up to the top of the Triangle early last week and how it was quickly followed by reversal and a plunge which crashed the support at the bottom of the Triangle. This plunge is given added significance due to the fact that it resulted in gold breaking down from the major channel shown - this is why the drop was so large. We have not employed this channel before but it is thought to have great importance as it relates closely to a similar parallel channel for silver drawn from the same point of origin in time on arithmetic scale. As we can see, gold's breakdown from this channel is thus far not by a sufficient margin to be convincing, but the same cannot be said of silver (see Silver Market update). On the silver chart we have a clear breakdown that is thought to mark the start of a phase of severe decline, which implies that the breakdown on the gold chart, although still marginal, is genuine.

So, gold and silver break down from uptrends, but then the next day bullish hammers (in the case of gold it was more a "dragonfly doji") appear on their charts indicating reversal. What can this mean? The reasons for the late rebound are not hard to find. Gold has dropped back steeply towards a zone of strong support just above the giant 20-month trading range and near its rising 200-day moving average, and is now oversold, factors which alone would normally move us to buy, as it would be unlikely to break down through this support without at least a token rally - and Friday's rebound is thought to signal the start of it. Token is all it is likely to be, however, because the macro environment is fast deteriorating. As already mentioned the silver chart looks terrible.

Copper has broken down to enter a bearmarket that promises to be brutal given its high stock levels, although its COT chart improved dramatically last week so a relief rally is very possible.The stockmarket, whose big bearmarket rally is believed to have run its course and whose technicals have been deteriorating for weeks or even months, is rolling over into a decline that looks likely to be severe - probably on a par with 2008. The gold stock indices have broken down decisively from their year-long uptrends, although they are due a brief relief rally, and of course the dollar is in a vigorous uptrend, even if it does react back short-term.

If, after a brief relief rally, gold does go on to break down below the strong support and drop away steeply, does it mean that its long bullmarket is over as another deflationary downwave strikes? Probably not - because politicians will panic like they did last time and open the floodgates to an even bigger tsunami of liquidity creation and bailouts, which next time lead can be expected to lead to massive inflation/hyperinflation as the situation spirals out of control. Once they open the spigots again gold and silver will truly soar into a spectacular parabolic blowoff, but in the meantime it looks like we are going to have to deal with Deflationary Downwave Mk 2, which might also be named "Son of Crash 2008".

In conclusion, a short-lived rally looks likely in gold and silver lasting perhaps a week or two, several weeks at most, after which they are expected to turn and plunge again. This rally is likely to be weak and unable to surpass the $1100 level. Should gold succeed in breaking above the top line of the Triangle, now at about $1110, it would turn the picture more bullish and would be expected to ignite a more powerful rally.

By Clive Maund
CliveMaund.com

For billing & subscription questions: subscriptions@clivemaund.com

© 2010 Clive Maund - The above represents the opinion and analysis of Mr. Maund, based on data available to him, at the time of writing. Mr. Maunds opinions are his own, and are not a recommendation or an offer to buy or sell securities. No responsibility can be accepted for losses that may result as a consequence of trading on the basis of this analysis.

Mr. Maund is an independent analyst who receives no compensation of any kind from any groups, individuals or corporations mentioned in his reports. As trading and investing in any financial markets may involve serious risk of loss, Mr. Maund recommends that you consult with a qualified investment advisor, one licensed by appropriate regulatory agencies in your legal jurisdiction and do your own due diligence and research when making any kind of a transaction with financial ramifications.

Clive Maund Archive

© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in