Dear Member,
Here is this week’s big picture update.
GOLD
Fundamentals:
Gold snapped a multi-week losing streak as the strong dollar began to show some vulnerabilities as it closed lower last week. We should continue to see further weakness in the dollar, then expect more upside in gold in the short term. As I’ve said previously, gold is heavily oversold and can bounce much higher from current levels.
As much as I’d like to say that gold is now going higher because of the geopolitical situation and the ramping up of what is still the early stages of the war cycles … the fact of the matter is that gold’s recent bounce is more technical in nature.
Geo-politics will become a bullish force for all precious metals down the road, but for now, we will have to wait until the metals meet their final bear market lows early next year.
Technicals:
Gold has now made a triple bottom at the $1,180 level, from June and December 2013, to last week’s low.
Triple bottoms are NOT bullish. They are bearish. The fourth test of the $1,180 area should finally see gold plummet to meet its final destiny, somewhere south of $1,000.
Resistance to any bounce, short term, is at the $1,235 – $1,240 level. Should gold push through the $1,240 level, then $1,270 comes into play on the upside. But that’s as far as I think gold can go at this time.
Support in gold initially can be found at the $1,210 – $1,200 level. But a close below $1,180 will mean lower prices ahead.
Monthly turning points in gold target November and January. A reaction high in November could be followed by a low in January and vice versa.
SILVER
Fundamentals:
Here, too, silver is in a position to bounce, for many of the same reasons, but mostly technical in nature.
Keep in mind I am still 100% certain that gold and silver will see new bull market highs in the years ahead, and well above those set in 2011.
Technicals:
The 50-day moving average now currently sits at the $18.75 level.
Should silver rally back to that level, expect some strong selling to come into the market. Beyond that, the $19.00 level comes into play and then $19.90. However, I highly doubt silver can get back to the $18.75 level.
On the downside, a simple close back below the lows of the previous week at roughly $16.75 will get the bear market rolling again.
THE U.S. DOLLAR
Fundamentals:
The pause in the record breaking rally in the dollar finally came this past week on the back of concerns by the Federal Reserve that the strong dollar was a risk to the U.S. economic outlook. And it is.
But I’m afraid the dollar is going much higher. There is simply too much bad news out of Europe and the Middle East, which is causing trillions of dollars of flight capital to be parked in the greenback.
In addition, the economic sanctions against Russia are having a devastating effect on European exporters.
While I’m on the topic of side effect, let’s not forget that the idea behind sanctions is to put pressure on Russia’s leader Vladimir Putin arguing in theory that the people will rise up in the face of hardship caused by sanctions.
But as always, actions have unintended consequences.
In Russia’s case, the sanctions have backfired and galvanized Putin’s popularity.
Meanwhile, as I just noted, the sanctions are becoming the final nail in the coffin for Europe’s economy. Both these forces are longer-term bullish for the dollar.
Technicals:
With all the technicals pointing to a higher dollar in the months ahead, I remain bullish the dollar. Only a closing back below 79, basis the nearest futures Dollar Index contract, would get me bearish at this stage in the game.
THE U.S. 30-YEAR BOND
Fundamentals:
With the Fed minutes last week revealing officials pledging to keep interest rates near zero for a considerable time after it concludes an asset purchase program due to end after its October meeting …
Bond bulls got the news they wanted giving them the courage to take on the shorts and take prices back up to the previous highs last seen in August.
In addition, the wild gyrations and steep slides in the stock markets sent many investors back into bonds, bringing yields down.
Technicals:
When I look at the chart in bonds I see continued strength with higher highs and higher lows, thereby a bullish trend continuing.
While bonds look poised to head higher, be warned that they are overbought short term and could consolidate at anytime. Only a close back below 136 would get me concerned, but below 134 would really be worrying. A close above previous highs will signal a target objective of 144 basis the December contract and possibly new lows in interest rates.
It would not be surprising, given that the U.S. equity market is now finally in a correction lower.
Best wishes,
Larry
