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Midweek Market 12 Sep 2019

Sep 12th, 2019

Executive summary

The big decline in precious metals appears to be finally underway and what we see now is the beginning of the final stage of the prolonged decline that started in Aug 2011. The trigger seems to have been the US Labour Day (1st Monday in September) which annually has the seasonal effect of starting a decline phase in precious metals. The decline is likely to witness prices below the Dec 2015 low before true bottom is reached and the eventual start of the next gold bull market. There are a number of support levels (especially $1383) to the gold price and these will of course provide temporary price improvements as they are triggered.


The US$ has sustained a strengthening phase since the start of 2018 which is soon likely to correct into weakness, especially with the equally likely US Fed round of more rate cuts to fend off recession. During this phase gold and the dollar will therefore weaken together, and not opposite to one another which is more usual. Many commentators are forecasting dollar strength in the period ahead, especially once chaos increases in markets and the dollar is perceived as a ‘safe haven’. Once gold starts to decline seriously it may be that the dollar at that stage will strengthen, and move opposite to each other in the more usual format.


US equities are strengthening, probably due to the forthcoming Trade War summit between China and the US early next month, with the hope that this may lead to compromise of some sort. Using the Dow Jones Industrial Average as a proxy for US equities (as well as global equities) it can be seen that the wave structure of the Dow chart is now developing into 2 (two) basic options as it continues development of a major global topping pattern that is leading to the next systemic crisis and market collapse. These two options are being watched carefully to verify outcomes as soon as possible.

US Dollar

The continued format in the US$ index is overall long term decline with a rally since 2008. Despite any likely short term decline the dollar index may well strengthen as gold continues to decline, before eventually declining towards the low 60s in the next 5 years as the next gold bull market gathers momentum.

The dollar index increased this week as it continues towards the wedge apex. This is a bearish pattern with the promise of weakness ahead together with the force of the powerful negative MACD divergence.

The daily 12 month chart illustrates the dollar edging up within both the expanding triangle and the rising channel. Both oscillators are moving sideways in anticipation of a stronger breakout in either direction, although negative MACD divergence remains active.

The 3 month daily chart illustrates dollar strength edging back up to test resistance. Both oscillators are neutral and with all MAs moving higher for 9 weeks now the impression is one of slower strengthening before eventual weakening.

Japanese Yen

Finally the dollar is strengthening against the Yen with 3 weeks of gains up to test resistance, from a low point below which no dollar support exists. Both oscillators are rising and the negative MACD divergence could now possibly be activating. However, the chart maintains its negative dollar bias with price still within both declining channels.

US Treasuries

The US Treasury countertrend rally could now be ending with a pronounced increase in the benchmark US Treasury 10 year yield from 1.37% to 1.75% in a week. This means a correspondingly geared decrease in the value of the bond as value in the US Treasury market begins to decline. The yield bottom still has to be confirmed and, judging by the chart, it would seem at least decisive and sustained penetration of 50-Dema would help. The global sovereign treasury market continues to hold more risk than at any time in history, and the period of central bank ‘silly season’ continues with still more issuing of global bonds yielding negatively. This means ultra-low interest rates and a ‘bubble’ in the so-called risk free Sovereign bond market as well as a few more US Fed rate cuts in trying to fend off recession. With this background it is difficult to understand how the US Treasury 10 year yield could possibly have bottomed.

Gold

Long term gold has turned down from major resistance, and the big decline in gold appears to be finally underway. This is the beginning of the final stage of the prolonged decline that started in Aug 2011, which is likely to witness prices below the Dec 2015 low before true bottom is reached and the eventual start of the next gold bull market. There are a number of support levels (especially $1383) to the gold price and these will of course provide temporary price improvements as they are triggered.

Gold turns down from the top of the expanding triangle with 2 bearish Shooting Star candles adding propulsion. There may well be corrections up, but the next wave down should reach $1450 into testing main support. Both oscillators are turning down from the top of their range in support of lower prices.

The daily 12 month chart illustrates the price drop from the peak as well as declining to the support level from where a rally is likely. There are many support levels within the support zone, and the chart indicates 2 of them at $1462 and $1413. Both oscillators are dropping in support of lower prices.

The 3-month daily chart illustrates confirmation of the top in consecutive closes below 10-Dema and successive lower lows. There will no doubt be a rally from here but eventually breaking below $1490 will test support, with support bottom at $1383 providing strong support and likely strong correction up. Both oscillators are dropping in support of lower prices with MACD some way to go still.

South African Rand

The dollar /ZAR currency pair declined into earlier support as the Rand strengthens more than 6% against the dollar in this cycle. Price has consolidated in the middle of the expanding triangle after closing below 50-Dema and 8 consecutive closes below 10-Dema.

HUI / Gold Ratio

The ratio has a trend change to down as the top is confirmed with a breakout. Price has moved down sharply as both oscillators do likewise with MACD still further to go. The negative MACD divergence assisted the breakdown.

GDX US miners ETF

Similar commentary to the HUI/Gold ratio with GDX in a trend change with breakout through the bottom trendline of the rising wedge. The MACD continues to stair step down and the negative divergence assisted in the breakout.

GDX Junior Gold ETF

GDX Juniors have an identical commentary to the GDX in a trend change to down with a breakout. Therefore the breakout is right across the full spectrum of US miners.

Dust US Miners Bear Index

The US Miners Bear index, as the inverse of GDX, has an identical commentary, but in reverse direction. Therefore this counter is in full support of lower US miner prices.

Silver

Long term silver spiked up in a failed breakout to end in a bearish Shooting Star candle that represents a reversal and potential top at the apex of the rising wedge. Both oscillators are turning down in support of a confirmed top and start of a weakening phase.

The short term daily 3-month chart illustrates the silver reversal in a potential top after the failed breakout. Penetration through $17.50 will test support with support bottom at $15.92 providing strong corrective rally potential.

Gold : Silver Ratio

The gold / silver ratio bounced up and down to close higher at 82.73, as volatility increases with the trend change in precious metals. This indicates gold beginning again to slightly outperform silver. Both oscillators have turned up indicating further upward movement in the ratio.

General Equities
US equities are strengthening, probably due to the forthcoming Trade War summit between China and the US early next month, with the hope that this may lead to compromise of some sort. Using the Dow Jones Industrial Average as a proxy for US equities (as well as global equities) it can be seen that the wave structure of the Dow chart is now developing into 2 (two) basic options as it continues development of a major global topping pattern that is leading to the next systemic crisis and market collapse. These two options are being watched carefully to verify outcomes as soon as possible.
Consider the chart below which includes the two options.

Option 1 (Red) Could complete the pattern (3)(4)(5) into the start of major collapse in 2021.
Option 2 (Blue) Could rise to a new high in 2019 into the start of major collapse in 2019.

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