Gold Market Update – the 7-year bearmarket phase is over…
By: Clive Maund
— Published: Monday, 15 October 2018 | Print | Comment – New!
Thursday last week was a momentous day for the Precious Metals sector with gold, GDX and other índices, and giant gold ETF, GLD all breaking out on impressive volume, and this development was all the more extraordinary because it happened when the broad stockmarket was crashing. This is viewed as a strong sign that instead of being dragged lower still by a crashing stockmarket, the PM sector will soar. Silver hasn’t broken out yet, but it should soon follow suit.
In recent weeks we have been wary that, despite highly favorable COTs and Hedgers charts and rotten sentiment indicators etc, a general asset liquidation might drag the PM sector even further down, but Thursday’s extraordinarily positive action by the sector serves to allay those fears. Of course, it’s not hard to see why the PM sector might do the opposite to what it did back in 2008 when the market crashed, and it nosedived too. There are two very big differences this time. One is that, before the 2008 crash, the PM sector was actually quite elevated. That is in marked contrast to now where it is beaten into the ground with sentiment in the basement – basically it is so unloved and neglected that the only way is up. The other big difference between now and 2008 is that while a major asset liquidation cycle will result in a flight to cash that could drive the dollar significantly higher, beyond that the longer-term outlook for the dollar is grim, with much of the rest of the world, tired of US bullying in the form of sanctions, military threats, and now trade wars, and its unquestioning support of rogue states like Saudi Arabia and Israel, committed to freeing themselves from dollar hegemony – and plans in this direction are now well advanced, with countries like China and Russia having built up big gold reserves that can at some point be used to back their currencies, and workable substitutes for the SWIFT payments system at the trial run phase. Subjected to continuous provocation, China may at some point decide to go for the “nuclear option” and dump its huge Treasury hoard, sending the Treasury market reeling and interest rates skyrocketing, which will cause the US economy to buckle and implode – the US appears to be overlooking that China has this power.
We start with gold where we see on its 6-month chart that it staged an impressive high-volume breakout from a rectangular trading range that formed following the low in mid-August. Right up until the breakout the pattern was ambiguous with the price being pressured by the falling 50-day moving average, so that it could easily have broken down again. Thus this big up day, with the price breaking clear above not just this average but also the resistance at the top of the pattern, was certainly an event of significance. The minor reaction on Friday is normal and provided us with an opportunity to pounce on the sector, having grasped the magnitude of Thursday’s action.
We don’t need to dwell much on the latest COT chart for gold, beyond pointing out that it is the most bullish COT we have seen since 2001, with the dumb Large Specs actually shorting gold to a significant degree as of last Tuesday night. A chart like this means that gold has the potential for huge gains from here.
Published by :
Jack Dempsey, President
401 Gold Consultants LLC
jdemp2003@gmail.com
