Market News

TREND REMAINS STRONG AND INTACT

Price action in gold has traded in a narrow window over the past few weeks, winding into a tight coil as it begins to consolidate for another leg higher. The wave counts suggests that gold is in the early stages of a Wave 5. In the chart above, the key near term level to watch to the downside is $1540. This level served as resistance in September 2019, and has been support for the last month. This level also roughly coincides with rising support from the uptrend channel that commenced in August 2018.

A break of $1590 to the upside would represent a breakout of the symmetrical triangle gold has been forming since December 2019. The measured moved would imply a run to the top end of the channel around the $1750 level.

If gold breaks the $1530-40 level to the downside, it would likely fall swiftly back to support at $1450, at which point a full backtest of the six-year breakout at $1380 would remain in play. By all indications, this seems like the least likely scenario. Probabilistically, I think gold is more likely to break up from this coil, or at worst, retest $1540 before making a thrust higher.

As always, I hope this is helpful, and I welcome any feedback or questions.

GOLD BREAKS OUT; SILVER GEARING UP FOR A MOVE

Gold bugs should be pleased with the monthly performance of gold in January. The definitive monthly break of the $1520 level, which had acted as strong monthly support six times between 2011-2013, before serving as resistance during this recent consolidation period between August and December, has sent a bullish longer term signal to the market.

The monthly gold chart (above) has honored the 38.2% and 61.8% fibonacci retracements religiously over the last nine years, which makes this month’s recent breakout all the more significant. In the chart below, you will note that I drew the beginning of my Fibonacci levels from the secondary high in 2011, and not the primary high (the absolute peak). In this case, the year long shelf following the peak is an area of much greater significance and the better location to start the ratios. Thus, the recent break of 61.8% is all the more notable.

Gold bulls would now like to see follow through in the price of silver, which has lagged throughout the recent run up. Silver now sits at the nexus of a nine-year falling channel (falling resistance) and an 18-month rising channel (rising support). The long-legged January doji candle is a symbol of indecisiveness. A breakout in February would set up a run to the 23.6 fibonacci retracement at ~$21, which is an area of overhead resistance. Bulls would need 16.20 to hold on the downside in the event of a price reversal.

PRICE PREPPING FOR NEW 7-YR HIGHS?

Happy New Year! We are kicking off the New Year with stocks at all-time highs, oil prices spiking on Middle East tensions, and the precious metals complex following through nicely for our November/December videos. If you haven’t had a chance to watch those videos, they offer a helpful background on the technical setup for metals and the price action we are seeing today.

12-03-19 Gold and Silver Mining Stocks Price Update (Video)

11-15-19 Gold Price Update (Video)

GOLD

Gold finally broke out of a bull wedge in late December following a four month (healthy) consolidation I had labeled as wave 4 of 5 in a five wave Elliott Wave pattern. This pattern has been neatly contained within a rising channel from the $1180 low in summer of 2018 to the September high of $1565 (the 61.8% Fibonacci retracement from the all-time high in 2011). The breakout occurred at rising channel support, and unless this is a truncated fifth, the length of the rise should target a move to the 78.6% retracement at ~$1700. Gold has some work to do to get there, and will likely consolidate/pull back as it works through supply between $1560-$1580.

The move is supported by strong confirmation throughout the mining complex, the breakout in silver, the overbought levels in the RSI (strong indication that the bulls are in control), the outperformance of junior miners relative to the producers, and a falling gold:silver ratio. The dollar has also shown recent weakness, breaking down from a multi-month channel, and is coiling into a multi-year symmetrical triangle that is likely to break strongly up or down before year end.

I would also add that gold has been outperforming the S&P 500 since September of 2018. This is not well publicized, especially as equities continue to make all-time highs, but an important development, to be sure.

Lastly, I tweeted this chart of gold performance by months for the past 20 years. It is worth noting that January tends to be a very strong month for gold.

SILVER

Silver has lagged gold for six years but is finally showing some signs of strength. The gold:silver ratio has fallen from a peak of 93 in July to a near term low of 79 in September, and has pulled back to 86 in recent week. However, the trend is now down, and the recent move is forming a bear flag that should take the ratio lower (good for the entire metals complex).

Silver has followed a similar pattern to gold, moving in a rising channel from the September ’18 low. A strong close above 18.78 would signal that a move towards the 38.2% Fibonacci retracement at 22 is the likely terminal move for Wave 5.

PLATINUM

Platinum has underperformed the sector for years. Price has flirted with the psychologically significant $1000 level twice now since September. However, the key level for platinum is $10-40-$1050. A break above that level would set up a test of the 38.2% Fibonacci retracement at $1300.

PALLADIUM

Palladium has been the all star of the metals complex, even through the bearish six year trough for gold. Price skyrocketed to just under $2,000/ounce as it met with resistance at the 361.8% Fibonacci extension and multiple rising channel resistance. If Palladium can breakout here, the next price target is $2250.

MINING STOCKS

I will not outline charts here of every mining stock I cover, but as a brief overview, see the charts below of GDX (Gold Miners ETF), PAAS (Pan American Silver), and Newmont Gold (NEM).

GDX has mirrored the technical pattern in gold. The key level is 31.50. A strong close above that level should usher in a swift move to 39.

Pan American has already broken out well above former resistance and seems poised for an eventual retest of all-time highs at 37, likely pausing at 29 along the way.

Newmont is just now breaking above the 43.30, but not definitively. A clean break above that level would set up a run to 51.

As always, I hope this is helpful, and I welcome any feedback or questions. Have a great weekend!