This was originally set to be published on Jan. 6, 2020
Happy Golden New Year to All!! May the wind be at your back!
Due to New Year holidays Net Commitments of Gold and Silver Traders and the KITCO Gold Survey were not published. The statistics of the Christmas week were published and showed large speculators were increasing their long positions and commercial dealers expanding their short positions.
The Gold Barometer (attachment 1) indicates a sharply overbought situation for gold shares (100%) (column 2+3). Physical gold and silver are also overbought (column 5+6). This would be worrisome in normal markets but current markets are not normal (see explanations below).
Attachment 2 shows the hourly chart (60 minutes) of the gold spot price. The price rose in an orderly manner but got capped from time to time by the big boys in order to prevent a runaway. On January 2nd, 2020, buying in Asia pulled the price up. Remember, it was also buying overnight from Asia, which triggered the big breakout on the upside in June 2019 when the gold price penetrated the resistance level at US$ 1'380 per ounce. However, the big jump came last Friday as the U.S. killed an Iranian General on a trip to Baghdad.
Attachment 3 displays the daily chart of gold spot prices. Once the US$ 1'485 per ounce level was broken on the upside, the gold bull market resumed, after having consolidated since the early days of September 2019. What can be said now is that a pullback to the US$ 1'380 per ounce will not occur anymore. The new downside support level is now US$ 1'485 to US$ 1'490 per ounce.
As per last Friday gold closed in New York, 4 p.m., at US$ 1'552 per ounce, up US$ 41 on the week. The price closed at the highest level of the week and matched the highest level of the temporary top of the gold price in September (attachment 4).
Now, what we are having here is not a normal market. Firstly, the gold market is in a clear bull market since June 22, 2019 as we have stated several times. However, there is still a huge mistrust and institutional investors have not really participated in a big way.
Secondly, the commercial gold dealers are short in a big way (attachment 5) (violet bars). The losses must be deep and it needs big money to keep the positions as not only margins have to be paid but the short sellers have to put up funds on a daily basis for the losses on the positions. They can hold out as long as they can and if not a short squeeze will occur. We are really starting to wonder if the Phantom of the Opera, who we didn't see in the market for months, has changed his tactics, and is hiding behind the dealers. Instead of selling down the price of gold US$ 20 per ounce ever so often, as he usually does, he is just capping the gold price on a daily basis preventing it from running away.
And thirdly, a new dimension was added to the market last Friday with the attack and killing of one of Iran's Generals. It does show the U.S. has the intelligence to locate anybody it wants and act on him. And they demonstrated they are willing to do whatever is necessary. This is bad news for leaders and politicians, who are not on the most favored list of the U.S. For instance it does warn leaders in North Korea, Iran and Syria. Iran has cried revenge and they have to do and will do something. Most likely on U.S. installations in the Middle East.
However, the size of the operation and timing is unknown. This creates uncertainty and that is bullish for gold. The chance for a deeper correction in the gold price is gone. Another bullish aspect is the potential of disruption in the Strait of Hormuz, where 20% of all oil is transported. That will keep a premium on the oil price and that is inflationary, hence again bullish for gold.
All said, the gold price is overbought (attachment 6 - lower graphic) (RSI=Relative Strength) but these are not normal markets, so it could go further up on the points mentioned above.
The ARCA Gold Bugs Index, called HUI, closed on Friday at 238.45, up a tiny 0.3% from the prior week. The daily chart (attachment 7) indicates despite the sharp advance of the gold price, HUI remained almost unchanged. However it gained over 8% the week before.
The largest gold shares ETF, VanEck Vectors Gold Miners ETF, symbol GDX, arrives at a major resistance level as seen on the weekly chart (attachment 8). GDX has to penetrate the US$ 30 level in order to get new life. The chart pattern over 7 years is strong and once it breaks out on the upside the potential is $ 45 or an increase of 50%. The monthly chart ( 1 bar per month) shows equally the strong formation (attachment 9).
The silver continuous future contract chart (attachment 10) shows the price stagnated for most of the week and arrived at the top level of the end of October/early November. The Point&Figure chart (attachment 11) indicates the silver price is trying to break out on the upside from a Falling Wedge.
The Global X Silver Miners ETF, the largest ETF for silver stocks, symbol SIL, US$ 32.69, has already reached a higher level than the top of the month of September and this to the contrary to the gold miners ETF (attachment 12). The Point & Figure chart (attachment 13) shows SIL has seriously broken out on the upside at around US$ 32 and is currently just checking back to the breakout point. This is a very bullish chart.
Attachment 14 displays the performance of the largest silver miners ETF (SIL) versus the largest gold miners ETF (GDX). Since early October silver shares have outperformed gold shares.
The silver 20-year monthly chart (1 bar per month) shows the huge bottom formation since 2014. Once silver breaks loose expect fireworks. This kind of chart can support a big bull market
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MasterMetals
@MasterMetals
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