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Weekend Market Analysis 19 February 2017

Feb 19th, 2017

US$

The US$ index completed a 10 day advance from the beginning of Feb with a slight downward correction this week to finally move up again to end the week at $100.95 above the 10- / 20- / and 50-Demas. The oscillators are neither overbought nor oversold and momentum seems to indicate a continuation of Dollar strength before weakness.

 

At $100.95 the Dollar is approximately in line with its 2 year triple top breakout and breakback and with the oscillators in neutral territory the next move is somewhat disguised.

 

The current mild US$ strength is still not affecting the precious metals complex negatively and all seems to be finely balanced for corrections either way.

Gold price

The gold price 2 year chart has not changed this week with price still poised at resistance at the Oct low of $1243 and approaching the 200-Dema. Price increases since Dec 2016 are now overdue a downwards correction in line with the current US$ upwards correction with the oscillators in a slightly overbought position.

 

The short term 2 month chart illustrates the strong price climb from the 20 Dec 2016 low with no closes below 10-Dema since 30 Jan 2017. The gold price remains subject to an overdue correction but now seems to be developing a pattern of small minor corrections whilst maintaining its upward bias. Nevertheless, it remains subject to a downward correction unless the previous top at $1247 can be exceeded. Obviously a stronger upward bias in the US$ price will trigger the correction but that also seems unlikely. Although gold and silver are now both in an upward bias a negative impact is a slight drop in volume toward the week end in both gold and silver.

 

Silver price

Silver extends its strong 7 week price advance into week 8 including a Friday close above $18 at $18.03, despite a slight drop at week end. It has therefore cleared its region of maximum historic resistance as well as the top resistance trendline in the megaphone pattern, just. The oscillators are moving toward the overbought zone.

 

The short term 2 month chart illustrates the strong price advance with 16 consecutive closes above 10- / 20- / and 50-Dema, in the face of the comparatively stronger US$. Technically, the silver price has just broken up through resistance at $18 and still shows no sign of a correction.

 

Gold : Silver Ratio

Silver outperforms gold during bull markets and underperforms gold during bear markets, as we know. Therefore the Gold : Silver ratio rises during bear markets and falls during bull markets. It is interesting to note in the 6 year chart of the ratio (which includes the gold market peak at Aug 2011) that there is a clear change in direction of the ratio in Feb 2016. This suggests confirmation that the gold 8 year cycle low was in fact Dec 2015.

The ratio closed Friday at 68.72 and there is a bullish Head & Shoulders pattern developing at a ratio of 66, which when penetrated will be the result of increased gold and silver prices.

 

US General Equities

US general equities are accelerating their upward generation of higher highs and higher lows, as embodied in the S+P500. Despite the bearish ‘rising wedge’ pattern this situation is likely to continue.

 

The short term 2 month chart illustrates the acceleration of the upward bias in the US equity market with no sign of change. The oscillators are all overbought and a correction is due anytime.

 

Conclusion

The US$ extended its upwards correction marginally on last week and is poised to move either way, whilst the precious metals complex has still not as yet responded  by correcting down. Gold and silver prices have extended their price gains from the lows of Dec 2016 and are overdue a downwards correction in line with the US$ advance.

But the gold price now seems to be developing a pattern of small minor corrections whilst maintaining its upward bias, in the region of resistance. It remains imperative that gold breaks up through resistance or becomes subject to a downwards correction. Silver prices have however broken through resistance, just, at $18, and shows no sign of correction. Silver behaviour is very supportive of better gold prices and whilst much depends on US$ behaviour it seems as if the precious metals complex is developing a form of immunity from Dollar behaviour.

US general equities as embodied in the S+P500 have accelerated price gains and will continue rising in the next period. However a correction is overdue.

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