Issue #115
Dear Member,
Here is this week’s big picture update. Be sure to read it!
GOLD
Fundamentals:
With tensions in Ukraine taking somewhat of a breather, gold precipitously sold off as traders — loading up to the gills in long positions expecting nothing short of war — were caught yet again on the wrong side and began unloading positions as prices dropped down adding to the selling pressure.
There will come a time that the rise we are seeing in the war cycles and increasing global geopolitical tensions will be very bullish for the metals, but not necessarily so in the shorter-term.
It looks likely now that gold has formed an intermediate top. However, as outlined in recent issues and in my Real Wealth Report, we now need to see how gold and silver handle key support levels.
If key support levels hold, we should soon see another substantial rally.
On the other hand, if they fail to hold ground, the metals may still be on track for sharp new lows in the weeks ahead. This is a critical time period the metals.
The key system support levels to watch now are:
For gold: $1,300 and especially $1,283.90 on a closing basis.
For silver: $19.54 and $19.47 on a closing basis.
If the above levels hold, both precious metals will make considerable headway at building a solid foundation.
Technicals:
Additional technical support for gold also lies at the $1,300 to $1,315 zone, in the form at the confluence of the 50- and 200-day moving average lines.
Indicators on the daily level have naturally deteriorated with Relative Strength Index (RSI) back down to support at the 50 level and the Moving Average Convergence-Divergence (MACD) confirming a bearish crossover.
However, on the weekly level, prices have found support at the 50-day moving average.
SILVER
Fundamentals:
As noted above, silver failed to follow through to the upside at the height of last week’s Ukraine crisis and traded lower with gold instead.
And like gold, there will come a time — not too far off — when silver does respond to the rising war cycles.
But first, it needs to build a solid foundation. And the question is whether that foundation will be built at current levels, or down at long-term support levels between $15 and $17.
Technicals:
Most short-term technical indicators remain bearish for silver, due to the recent selloff. But the key — as noted above in the gold section — will be to see how silver handles system support at the $19.54 and $19.47 levels on a closing basis.
THE U.S. DOLLAR
Fundamentals:
The big announcement by Janet Yellen last Wednesday of an interest rate hike sooner rather than later had dollar bears scrambling for the exits, as a wave of short covering entered the market.
Along with the additional tapering the Fed is doing, the dollar put in its biggest daily rally in over six months.
I remain bullish the dollar on a short- and intermediate-term basis.
Technicals:
With the rally last week the dollar has managed to erase the losses from the previous three weeks of trading and has retraced the whole width of the Bollinger Band in one go. Thursday’s rally was checked by the 50-day moving average with the upper Bollinger line slightly above. A close above this next week should signal higher levels to come in the Dollar Index.
At this stage only a close back below the 80 level would warrant some caution for bulls. A return to the low of the previous week would signal a resumption of the downtrend. But this is looking unlikely at this stage. With the dollar trading back above the 80 level bulls may be further encouraged to take the market higher, but only time will tell.
Indicators on the daily level confirm the bulls regaining control of this market with the RSI now already well above the 50 level after being down at oversold levels only a few days prior.
Directional Indicators and the MACD have struck a bullish crossover.
THE U.S. 30 YEAR BOND
Fundamentals:
The long bond looks to be shaping up for another leg higher, despite the hawkish rhetoric out of the Fed. The chief reasons in my opinion: The stock market is making a large topping formation: If stocks do pullback, bonds may yet receive a modest boost due to flight capital.
However, it would be short-term in nature, as long-term, rates are headed higher and bond prices lower.
Technicals:
Bonds sold off on last Wednesday’s Yellen comments, but have completely retraced this entire move and then some to close the week out pretty much where it began.
Bonds have put in a series of tops that could prove difficult to overcome at around the 135 level — but a convincing close above this should mean higher levels to come.
On the daily level strong support does come in at around the 132 level as this is also the conjunction of the 50- and 200-day moving averages. Only a close below these levels would warn of lower prices for bonds with further support down in the 131.30 region in the near term.
Indicators are somewhat mixed on the daily level. The RSI has fallen back down to support at the 50 level and that should hold at least in the short term. This suggests a bounce in prices may develop over the next few days.
Upper Bollinger line now rests at slightly above the 134 level and would take a close above that to confirm a potential breakout. On the weekly levels, the picture looks similar with RSI clinging on to support at the 50 level. It does look as if bonds are now deciding which way it wants to go and the action in the next week or so could tell us which way that will be.
Lastly: The most important markets to watch now are none other than the precious metals and the stock market. My work is showing that both sectors are at critical junctures.
That means the action in both is going to be very jittery but at the same time, hugely important. Rest assured I am watching the markets like a hawk, nearly 24-7 right now. So stay tuned!
Best wishes,
Larry
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