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The Gold market update

The gold price in US$ bottomed mid-Dec 2015 in it’s decline since the top of the market in Sep 2011. Since then it increased 24% to the recent peak at $1306 at the end of April. A consolidation correction indicating a bearish head and shoulders pattern breached at the end of May, and the price dithered further to touch $1200 before recovering to it’s current $1213.

Technically, a ‘dead cross’ occurred mid-Feb 2013 followed by a ‘Gold cross’ mid Feb 2016. Where to from here?

The daily data indicates a short term buy signal; looking at indicators such as RSI, MACD and StochMACD, and the ‘Gold cross’ – Blue square.

Gold price daily small

But the longer-term weekly data indicates a sell signal. Red rectangle.

$ Gold price weekly small

The current gold price is hovering and could move up or down, much like all the influencing factors: US$, Gold/Silver ratio, and the Dow/Gold ratio.

US$ index has broken up through it’s short term trendline but is lethargic and seemingly resisting any attempt to break through it’s 200 day moving average. This is all largely dependent on US Fed ‘noise’ and the belief in imminent rate hikes, or not. The US stock market seems to be mimicking this sentiment in similar lethargy. The primary US$ trend remains down which is bullish for gold, but is enjoying a current upwards correction.

$USDsmall

Two of the prominent long term indicators of potential movement in the gold price is the Gold/Silver ratio and the Dow Jones/Gold price ratio.

The Gold/Silver ratio has an extreme trading range of 90-40 which turns down during a strengthening gold bull market and up during a gold bear market. It is now at 76 correcting up in a primarily downward trend: Much like the US$ trend. Observe the graph below.

Gold Silver ratio small

The Dow / Gold ratio was as high as 45 in 2000 but reduced markedly to 9 as the gold market hit it’s peak in Sep 2011. Since then, in accordance with the gold bear market, it increased to 13.8 when gold reached it’s recent peak of $1306. During the period of correction since the end of April the ratio increased to 14.6 currently.

Dow Gold ratio small

The ratio has broken down through its confining trendlines of the last 3 years and would appear to soon resume the it’s downward trajectory once the present period of consolidation is over in all the indicators.

The position in the status of COTs seems to have moderated slightly with a reduction in the balance of massive gold trading short positions. The activity of central banks and the eroding of confidence in the international monetary system, plus the deteriorating state of global economies, Brexit, Greece, etc., continues to support the gold market.

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