More Important Than Gold's Bottoming Price / Commodities / Gold and Silver 2018
Timeis more important than price. That’s what we – investors – are often made tobelieve regarding the future price movement. And rightfully so. The price couldreach a bottom several dollars ahead of the predicted price target or it couldbreak through it, leaving investors wondering, if there was a breakdown andthus they should expect to see another big downswing shortly. With time, thingsare clearer. The time for a given move is up and the price reverses. When isgold likely to finally bottom?
BetweenAugust and October 2018. That’s the most up-to-date estimate based on the datathat we have right now. Here’s why (charts courtesy of http://stockcharts.com).
Inthe previous weeks and months, we wrote on multiple occasions why the currentsituation is similar to the 2012-2013 top and subsequent decline, so we don’twant to go into details once again today. Instead, we want to focus on the sizeof the follow-up action in terms of price and time.
Whengold topped above $1,350 in early September 2017, it seemed that the declinemight have started. This might have indeed been the case, but the pace at whichgold has moved lower up to today is different. It was sharper in 2012.Consequently, perhaps looking at the decline from the late-2012 top to the 2013bottom and applying it to the September 2017 top in order to estimate the timeand price of the upcoming bottom is not the best approach.
Itmight be better to start the analogy with the second top of the decline – theNovember 2012 top. At the same time, we should take into account the scenarioin which gold follows the entire 2012-2013 decline, but the current startingpoint should be the current top, not the September 2017 one.
Bothmentioned analogies are visible on the above chart in the form of the bluedashed lines. They point to a bottom in August or in late September (perhapsearly October).
Thelatter is more probable because of another important factor that points to thistimeframe. The long-term cyclical turningpoint.
Untilthe 2011 top, all long-term turning points in gold marked major interim highand after that all of them marked interim bottoms. This also includes the 2013bottom.
Thenext of the long-term turning points is to be seen in late September 2017,which perfectly fits the mentioned analogies.
Let’smove back to the shape of the declines and their size in terms of price. Theprice that gold is likely to reach in the second half of this year is a bitbelow $900 – which is in tune with the 61.8% Fibonacci retracement level and the lowerborder of the declining trend channel.
Speakingof the trend channel, please note that gold is almost at its upper border.Consequently, gold likely has very little room to move higher in the shortterm.
Beforemoving further, we would like to once again emphasize that the currentsituation is not only similar to the 2012-2013 performance, but also to the2008 one. You can see the similarity for instance in the increase in the levelof volume. This was the kind of performance that preceded one of the sharpestof gold’s declines in the past few decades. The implications are bearish.
There’smuch more to the outlook for gold than just the analysis of the yellow metals’price. Consequently, in today’s freeanalysis,we discuss one of the very little-known charts featuring the junior miningstocks to senior mining stocks ratio. The reason that we’re following it isthat juniors tend to outperform seniors, further magnifying gold’s gains and,consequently, the ratio moves in tune with gold. This gives us the opportunityto check for divergences and to use the ratio to confirm gold’s direction.
Thelink between the price of gold and the ratio is far from being clear, which isprobably why it’s something that’s under the radar of most investors andanalysts. However, the link being unclear doesn’t mean that we can’t use it.Applying the RSI indicator allows us to detect the particularly important pricemovements.
Wepreviously featured the above chart in late 2017 and we wrote that in themajority of cases a move to the 70 level in the RSI was followed by a declineand thus the above chart had bearish implications. Even very likely doesn’t mean imminentand this time, the less likely outcome transpired. Gold moved higher, just likeit was the case in one out of the 11 previous cases.
Whyare we bringing this back today? In order to check if gold is performing intune with the single session that turned out to be similar to the currentperformance.
Itis. Back in February 2017, gold moved less than $40 higher after the signal(the RSI moving to 70) and wecurrently see something alike. The rally is a bit bigger right now, but verymuch in line with the past case. If the only similar session was followed by arally that’s similar to the current one, then this rally might be over or aboutto be over.
There’sanother way to look at similarities on the above chart. Instead of focusing onthe RSI at 70, let’s check when was the last time the RSI moved to about 80,and what happened then. After all, that’s also what we saw recently. The abovechart features only one similar case – April 2016. Interestingly, back then,gold moved higher by about $40+ before topping. If history is to repeat itself,gold has either topped or is about to form a top shortly.
The medium-term outlook for the precious metalsmarket remains bearish as confirmed by multiple factors, and based on the mostrecent short-term factors, it seems that the corrective upswing in gold, silverand mining stocks is either over or close to being over. Gold’s criticalperformance in terms of the Japanese yen, situation in the Euro Index, and bothkey precious metals’ turning points support the above.
Summing up, even though gold’s upswing may seemencouraging to gold investors, it seems that it’s days are numbered based onmany factors, including the performance of the juniors to seniors ratio. Thetrue buying opportunity is likely to present itself this year, but most likelynot in its first half. The period between August and October seems to be themost likely time-frame for the final bottom in the price of the yellow metal,with October being the more probable date. As far as the outlook for the price of gold in January is concerned, the situation appears bearish.
Naturally, the above is up-to-date at the momentof publishing it and the situation may – and is likely to – change in thefuture. If you’d like to receive follow-ups to the above analysis, we inviteyou to sign up to our gold newsletter. You’ll receive our articles for free andif you don’t like them, you can unsubscribe in just a few seconds. Sign up today.Thank you.
Przemyslaw Radomski, CFA
Founder, Editor-in-chief
Toolsfor Effective Gold & Silver Investments - SunshineProfits.com
Tools für EffektivesGold- und Silber-Investment - SunshineProfits.DE
* * * * *
About Sunshine Profits
SunshineProfits enables anyone to forecast market changes with a level of accuracy thatwas once only available to closed-door institutions. It provides free trialaccess to its best investment tools (including lists of best gold stocks and best silver stocks),proprietary gold & silver indicators, buy & sell signals, weekly newsletter, and more. Seeing is believing.
Disclaimer
All essays, research and information found aboverepresent analyses and opinions of Przemyslaw Radomski, CFA and SunshineProfits' associates only. As such, it may prove wrong and be a subject tochange without notice. Opinions and analyses were based on data available toauthors of respective essays at the time of writing. Although the informationprovided above is based on careful research and sources that are believed to beaccurate, Przemyslaw Radomski, CFA and his associates do not guarantee theaccuracy or thoroughness of the data or information reported. The opinionspublished above are neither an offer nor a recommendation to purchase or sell anysecurities. Mr. Radomski is not a Registered Securities Advisor. By readingPrzemyslaw Radomski's, CFA reports you fully agree that he will not be heldresponsible or liable for any decisions you make regarding any informationprovided in these reports. Investing, trading and speculation in any financialmarkets may involve high risk of loss. Przemyslaw Radomski, CFA, SunshineProfits' employees and affiliates as well as members of their families may havea short or long position in any securities, including those mentioned in any ofthe reports or essays, and may make additional purchases and/or sales of thosesecurities without notice.
Przemyslaw Radomski Archive |
© 2005-2018 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.