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Precious Metals & Miners Flash Short-Sell Signal

It has been a bumpy ride for precious metal investors over the past couple of years and it unfortunately I do not think its over just yet.

The good news is that the bottom has likely been put in for gold, silver and gold miners BUT the recent rally in these metals and miner looks to be coming to an end. While we could see another pop in price over the next week or so the price, volume and momentum see to be stalling out.

What does this mean? It means we should expect short term weakness and lower prices over the next month or two.

Below are three charts I posted several months ago on my free stockcharts list. These forecast were based off simple technical analysis using cycles, Fibonacci and price patterns. As you can see we are not trading at my key pivot level which I expect selling pressure to start to increase and eventually overpower the buyers sending the prices lower.

 

Gold Trading Weekly Chart:

Here you can see that gold is technically in a bear market when viewing it on the weekly chart. If you were to pull up a daily chart you would likely notice how the price of gold is trading at a key resistance level on the chart and has reached its full flag measured move.

What does this mean? It means the odds are pointing to lower prices for gold in the next few weeks. Keep in mind though I do feel as though a major bottom has been put in place for the precious metals sector. So buyers are likely to step back in around the $1300 area.

goldoverbought

 

Silver Trading Weekly Chart:

Silver has a little bit different looking chart but the same analysis applies here as it did in gold.

silveroverbought

 

Gold Miners Trading Monthly Chart:

Gold miners may have bottomed on this monthly investing timeframe chart but the daily chart which you will see next clearly shows short term weakness has started.

GDXLongtermBottom

 

Gold Miners Trading Daily Chart:

This daily chart really shows my thinking for miners and the overall precious metals sector as a whole. The recent weakness in gold miners to the down side point to distribution of shares. This is very negative for the price of physical gold and silver as gold mining stocks tend to lead physical metals.

The yellow box shows a possible major stage 1 basing pattern forming. If this is the case, then we will have a great opportunity in the coming months when the precious metals down trend completes a reversal and start heading higher.

gdxoverbought

 

How to Trade Precious Metals & Gold Miners Conclusion:

In short, I think that staying in cash or shorting metals is the play for the next couple weeks. After that anything can happen and until price breaks down or finally completes the basing pattern and confirms a market bottom I would be very cautious trading here.

In the last week members of my trading newsletter took profits on our short SP500 trade and we closed a long trade in natural gas for a quick 6.5% gain. Join our community of traders and have your money on the right side of the market!

Chris Vermeulen
www.GoldAndOilGuy.com

 

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Gold, Silver and Miners Remain Junk Grade Investments

Since silver and gold topped in 2011 investors have been struggling with these positions hoping this cyclical bull market for metals continues. The simple truth is no one knows for sure if prices will continue and make new highs and those who say its a for sure thing we all know deep down is full of bull crap.

All investments move in cycles, waves or trends which ever you want to call it. The market has 4 simple yet distinct stages each require a completely different skill set and trading tactics to navigate.

Stage 1 – After a period of decline a stock consolidates at a contracted price range as buyers step into the market and fight for control over the exhausted sellers. Price action is neutral as sellers exit their positions and buyers begin to accumulate the stock.

Stage 2 – Upon gaining control of price movement, buyers overwhelm sellers and a stock enters a period of higher highs and higher lows. A bull market begins and the path of least resistance is higher. Traders should aggressively trade the long side, taking advantage of any pullback or dips in the stock’s price.

Stage 3 – After a prolonged increase in share price the buyers now become exhausted and the sellers again move in. This period of consolidation and distribution produces neutral price action and precedes a decline in the stock’s price.

Stage 4 – When the lows of Stage 3 are breached a stock enters a decline as sellers overwhelm buyers. A pattern of lower highs and lower lows emerges as a stock enters a bear market. A well-positioned trader would be aggressively trading the short side and taking advantage of the often quick declines in the stock’s price. More times than not all of stage 2 gains are given back in a short period of time. I do show some of my trade setups using these exact stages free here: https://stockcharts.com/public/1992897

Stages

Now that you know the stages and what it looks like its time to review the gold, silver and miners charts.

 

Gold Chart – Weekly

Gold has been in a bull market for several years but is starting to show its age in terms of the size of the price patterns, volume levels and extreme bullish sentiment. Back in 2011 a week before price topped we exited precious metals because the short term charts and volume levels were warning of a sharp drop. Since then I have not done many trades in either gold or silver because I do not like shorting in bull markets. Waiting for a bullish setup/price pattern before getting involved is my focus.

Gold has pulled back with a bullish 5 wave correction the last 5 months and at key support. While the long term charts are pointing to higher gold prices you must be aware that if gold and silver start to breakdown things will likely get ugly quickly. To be honest I do not care which way it goes, I just want it to either rally from support here and make new highs or breakdown and crash. Both will be very profitable if traded properly.

Gold

 

Silver Chart – Weekly

Silver has a very similar chart to that of its big sister (yellow gold).  This shiny metal has the energy of a 3 year old making it a very volatile investment. I have touched on the topic of gold and silver being so called safe havens and if you have been reading my work for a while you know that any investment that can move 18-45% in value within 1 month is NOT a safe haven.

While it has done well in the past decade and boosted a lot of retirement accounts the day will come with these things collapse and most people holding them will give back most if not all the gains they had simply because people get attached to large positions and most do not know when to just exit a position.

Silver

 

Gold Miners Chart – Monthly

This chart gives me cold sweats because I know how many people own gold mining stocks and I know how fast these things can move. If the price closed below the green support line the bottom could fall out and be very painful for those who get paralyzed by denial and do nothing but watch their accounts lose value week after week.

Miners

 

Precious Metals Investing Conclusion:

In short, this report is to show you the very basics of how investments move in stages. It is also to show a warning that precious metals are technically very close to a major breakdown which the big money players are watching closely. This thinly traded sector can move extremely fast when everyone rushes for the door.

Do not get me wrong, I am not saying a crash is about to happen, actually it’s the opposite. All I am doing is planning the idea in your subconscious so that if prices continue to move lower you will remember that these price levels and take action with your investments. Remember, you can always buy the investment back at any time again if the outlook changes in a week, month or year.

Get My FREE Weekly Gold, Silver and Mining Reports and Trade with the Stages: www.GoldAndOilGuy.com

Chris Vermeulen

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Gold and Silver Nearing MAJOR Long Term Support

Gold and silver along with their related miners have been under a lot of selling pressure the last few months. Prices have fallen far enough to make most traders and investors start to panic and close out their long term positions which is a bullish signal in my opinion.

My trading tactic for both swing trading and day trading thrive on entering and exiting positions when panic trading hits an investment. General rule of thumb is to buy when others are extremely fearful and cannot hold on to a losing position any longer. When they are selling I am usually slowly accumulating a long position.

Looking at the charts below of gold and silver you can see the strong selling over the past two weeks. When you get drops this sharp investors tend to focus on their account statements watching the value drop at an accelerated rate to the point where they ignore the charts and just liquidate everything they have to preserve their capital. A few weeks ago I posted my outlook on precious metals which seems to be unfolding as expected: http://www.thegoldandoilguy.com/precious-metals-miners-making-waves-and-new-trends/

Gold Bullion Weekly Chart:

The price and outlook of gold has not really changed much in the past year. It remains in a major bull market and has been taking a breather, nothing more. Stepping back and reviewing the weekly chart it’s clear that gold is nearing long term support. With panic selling hitting the gold market and long term support only $20 – $30 dollars away this investment starts to look really tasty.

But if price breaks below the $1540 level and closed down there on a weekly basis then all bets are off as this would trigger a wave of selling that would make the recent selling look insignificant. And the uptrend in gold would now be over.

Gold1

 

Silver Bullion Weekly Chart:

Silver price is in the same boat as its big sister (Yellow Gold). Only difference is that silver has larger price swings of 2-3x more than gold. This is what attracts more traders and investors but unfortunately the masses do not know how to manage leveraged investments like this and end up losing their shirts.

A breakdown below the $26.11 price would likely trigger a sharp drop back down to the $17.50 level so be careful…

Silver2

 

Gold Mining Stocks – Monthly Chart:

If you wanna see a scary chart then look at what could happen or is happening to gold miner stocks. This very could be happening as we speak and why I have been pounding the table for months no to get long gold, silver or miners until we see complete panic selling or a bullish basing pattern form on the charts. We have not seen either of these things take place although panic selling is slowly ramping up this week.

There will be some very frustrated gold bugs if they take another 33% hair cut in value… You can view some of my trading charts, setups and analysis free at my stockcharts.com list. Be sure to vote for me chartlist each day so I know its of value: https://stockcharts.com/public/1992897

GoldMiners3

 

Precious Metals Trend and Trading Conclusion:

In short, the precious metal sector remains in a cyclical bull market. That being said and looking at the daily charts the prices have been consolidating and are in a down trend currently. Until we see some type of bottoming pattern or price action form it is best to sit on the side lines and watch the emotional traders get caught up and do the wrong thing.

The next two weeks will be crucial for gold, silver and miner stocks. If metals cannot find support and close below the key support levels things could get really ugly fast. If you would like to receive my daily analysis and know what I am trading then check out my newsletter at: www.TheGoldAndOilGuy.com

Chris Vermeulen

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Post-Election Trading Made Simple

Over the past two months shares of gold (NYSE:GLD) and Apple (NASD:AAPL) have had a sizable bite taken out of their share price. Active traders along with the longer term investors have had a wild ride this fall watching these investments slide to multi month lows. The big question is when will gold and apple shares bounce?

Here we are again with another election behind us and Barack Obama in the White House again. Many think this means four years of the same thing… Printing, Inflation and higher stock prices.

Is this good or bad for Americans or the world for that matter? I doubt it, but who really knows and who cares because there is nothing anyone can do about it now. So buckle up your seat belt and focus on trading and investing with major trend both within the United States and abroad using exchange traded funds.

Currently the broad stock market and commodities are in a full blown bull market so the focus should be to buy the dips until proven wrong. Below are some charts showing the important breakout levels for Apple, metals, oil and key indexes like the Russell 2000.

Be aware that during pullbacks which last more than a month which is the market has done, some of the biggest drops in price happen just before prices bottom… Scaling into positions is the key to minimal draw downs.

 

Apple Inc. – AAPL Stock Chart:

Shares of Apple clearly show the down channel which must be broken before investors start buying again. This stock seems to have big potential for $650 to be reached quickly. If Apple shares rise so will the overall stock market… Follow my live charts free here: http://stockcharts.com/public/1992897

AAPL - Apple Shares

 

Gold Spot – GLD Exchange Traded Fund:

During August and September investors flooded the gold market in anticipation of QE3. Since then gold has been drifting lower with profit taking and because of some slowly strengthening economic numbers in the USA. Gold looks ready for a run to the $1800 but may stabilize here for a few weeks first.

Gold Breakout

 

Silver Spot – SLV Exchange Traded Fund:

The price of silver moves similar to that of its big yellow sister (Gold). While the charts look the same silver is highly volatile and can super charge your portfolio when metals rally.

 

Crude Oil Spot – USO Fund:

Crude oil has been correcting for a couple months also and still has a lot of work to do before a new uptrend to be triggered. Currently oil is trading in the middle of is trading range but once the price breaks above $93 per barrel a good investment fund would be USO.

Oil Breakout

 

Russell 2000 Small Cap Index – IWM

Small cap stocks typically lead the broad market in both directions. They are the first to rally and the first to rollover and sell off. The major indexes like the DOW, SP500 and NYSE have not formed clean chart patterns which is why my focus is on the Russell 2000. Small cap stocks are now showing a rising relative strength compared to the SP500 large cap stocks and this is very bullish for stocks in general. The best way to trade this index is through the exchange traded funds IWM and TNA.

Rut Breakout

 

Post-Election Trading Breakout Summary:

In short, history shows that equities tend to rally after an election. For a detailed outlook of how to trade stocks and indexes during the election cycles be sure to read my report “The Election Cycle – What to Expect in Stocks & Bond Prices

Chris Vermeulen
www.TheGoldAndOilGuy.com
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Gold Standard To Be Reinstated Through The Back Door

For the first time in over 30 years, talk of a return to the gold standard has become part of mainstream politics in the United States. Part of the official Republican policy adopted it at the recent Republican Convention and called for the commission to look at reestablishing the link between gold and the U.S. dollar. No doubt that plank was added to soothe supporters of Texas Congressman Ron Paul.

However, gold bugs holding gold bullion or even those holding gold ETFs such as the SPDR Gold Shares (NYSE: GLD) shouldn’t hold their breath in anticipation of the gold standard returning. There was a similar commission – the Gold Commission – set up in 1981 by President Ronald Reagan. After a lot of ‘commissioning’, the decision was made to go with the status quo of using fiat Federal Reserve dollars.

Any commission set up under the current president would likely come to the same conclusion. There are simply too many practical obstacles to return to a full-fledged gold standard. Even pro-gold advocates including the World Gold Council and the Gold Anti-Trust Action Committee (GATA) don’t see a gold standard returning.

The key problem would be at what price of gold would the United States peg its currency. Great Britain returned to the gold standard in 1925, after going off it in 1914, at the 1914 peg price. This was a mistake made by Winston Churchill (he called it the biggest he ever made) since it basically ignored the vast inflation in the British pound in those intervening years. The result was a vast overvaluation of the pound and deflation and high unemployment soon followed.

What price would a new Gold Commission set as the “correct” price of the U.S. dollar versus gold? $1,000? $2,000? $5,000? The answer is that there is no “correct” price. Whatever price is set will eventually be tested by the financial markets and fail much as the pegged currencies system failed. So there will be no return to the gold standard.

But that does not mean there will not be a ‘back-door’ gold standard. The move to such as a system is already underway as central banks all over the world are rebuilding their stockpiles of gold. After two decades of heavy selling, central banks became net buyers of gold in 2010 and the momentum has built since. Gold will likely end up being used as ‘good’ collateral by global central banks, as opposed to the shaky collateral sovereign bonds are turning into.

Central bank purchases, led by the emerging markets, are on track this year to hit a record high according to the World Gold Council. China alone in 2011 bought around 490 tons of gold. Other countries including Russia, Turkey and South Korea have added gold to their official holdings in recent months. This buying showed up as central bank purchases in the second quarter of 2012 were more than double the level reported a year earlier at 157.5 metric tons. If the buying continues at current levels, central banks gold purchases would total around 500 tons this year, easily surpassing last year’s 458 tons.

The bottom line for investors from the global central banks’ buying of gold? The gold standard is working its way back into the international monetary system through the back door. This should, in the long-term, put a floor under gold and help maintain it on its steady upward path.

Just last week we started to see gold bullion, silver bullion and gold miner share prices start to breakout to the upside of a 12 month consolidation pattern. This could be the start of the next major rally in precious metals as future uncertainty fears continue to rise. The large bullish technical pattern we see on the gold chart points to much higher prices over the coming 24 months. But keep in mind this is a monthly chart and it could still take months to truly breakout to new highs and start another rally.

Gold Bullion Trading

If you would like to get my weekly analysis on precious metals
and the board market join my free newsletter at www.TheGoldAndOilGuy.com

Chris Vermeulen

 

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The Precious Metals MAJOR Breakout Part II

It has been a year since the price of gold bullion topped out and even longer for silver. Many traders and investors have been patiently waiting for this long term consolidation pattern to breakout and trigger the rally for precious metals and miner stocks. Most of gold bullion is used for investment purposes.  As a result, it rises when there is economic weakness and investors lose confidence in the fiat currency of a country.

With continuing economic weakness in the United States it will almost certainly lead the Federal Reserve to act in way that is more powerful than Operation Twist which is the selling of short term securities to buy those with a longer term.   Based on the most recent data, economic growth in the United States is falling as the unemployment rate rises.  A recent statement by the Federal Reserve was unusually clear in calling for greater action in the future.

 

Gold, Silver and Dollar Weekly Price Chart:

Take a look at the weekly charts below which compare gold and silver to the US Dollar index. You will notice how major resistance for metals lines up with major support for the dollar. As this time metals are still in consolidation mode (down trend) and the dollar is in an uptrend.

Weekly Metals Outlook

 

Gold Miners ETF Weekly Chart:

Gold miners have been under pressure for a long time and while they make money they have refused to boost dividends. That being said I feel the time is coming where gold miner companies breakout and rally then start to raise dividends in shortly after to really get share prices higher.

GDX - Gold Miner Stock ETF

On August 13th I talked about the characteristic’s and how to trade the next precious metals breakout and where your money should be for the first half of the rally and where it should rotate into for the second half. Doing this could double you’re returns. Read Part I: http://www.thegoldandoilguy.com/gold-mining-stocks-continue-to-disappoint-but-not-for-long/

Overall I feel a rally is nearing in metals that will lead to major gains. It may start this week or it still could be a couple months down the road. But when it happens there should be some solid profits to be had. I continue to keep my eye on this sector for when they technically breakout and start an uptrend.

If you would like to get my weekly analysis on precious metals and the board market be sure to join my free newsletter at www.TheGoldAndOilGuy.com

Chris Vermeulen

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Gold Price and Indian Demand Shifting Trends

Chris Vermeulen – www.TheGoldAndOilGuy.com

One of the top stories in the financial markets in 2012 has to be the stagnation in the price of gold at around $1600 an ounce, which is down approximately 17% from its peak at $1920.30. Those bullish on the yellow metal have been disappointed in gold’s performance while those bearish on the shiny metal have reveled in its stagnation, saying that gold’s status as a safe haven is over.

What is behind gold’s sluggish performance in 2012? There are several reasons, but one of the key fundamental reasons has been the lack of demand from traditionally the largest buyer of gold on the planet – India (although China will surpass it this year). India bought only 181.3 tons in the second quarter of 2012, a 2-year low, according to the London-based World Gold Council.

There are several factors at play as to why Indian demand for gold has fallen. One reason is the sharp drop in the value of its currency, the rupee, which is down by 25% versus the U.S. dollar this year. This decline has kept gold prices high in relative terms while the actual dollar value of gold was falling. Perhaps even more important has been the ‘war’ declared on gold by its central bank which has blamed all of the country’s economic ills on Indian citizens’ traditional buying of gold. In an attempt to slow down gold and silver imports, the Indian government has imposed new taxes on the purchase of these precious metals.

But even though demand for the precious metal is way down in India, the situation still offers hope for gold bulls. Why? Because we’ve been here before – in 2009 to be exact. In early 2009, the Indian economy and rupee tanked. Gold demand almost completely dried up. According to precious metals consultancy GFMS, Indian demand for gold in the first quarter of 2009 collapsed by 77%. For the full year GFMS said Indian consumption dropped by 19%.

Now with the Indian economy slowing to its weakest growth rate in nearly a decade and the rupee falling, we are seeing a replay of 2009. The monsoon season has been poor, hitting farmers – among the biggest buyers of gold – hard. Gold prices have hit a record high in rupee terms, and India is expected to purchase, as forecast by the World Gold Council, only 750 tons of gold, down 25% from 2011 levels. Meanwhile, the WGC forecasts that China will buy 850 tons of gold this year.

Investors should pay heed to the clues that recent history is giving us. The drop in Indian demand is simply a cyclical phenomenon due to the lousy state of the Indian economy. It will recover eventually. And when it does, look out for the fireworks from renewed Indian demand for gold added to the Chinese demand. In 2010, as pent-up demand for gold was unleashed, Indian gold consumption soared 74% to a record high of 1,006 tons according to GFMS.

Gold bulls surely hope we see something similar in 2013 and that is exactly what I talked about last week based around gold miner stocks and also what Dave Banister’s recent gold forecast was about at TheMarketTrendForecast.com sees in 2013.

Gold Chart Showing 2009 Collapse and Outcome and Current Gold Price Analysis:

Gold Forecast - India Gold demand

Gold Forecast - India Gold demand

Gold Trading & Investing Conclusion:

In short, gold and gold stocks have a lot of work to do before they truly breakout into the next major leg higher. I feel we are nearing that point and they may have bottomed already. Starting a small long position to scale in I think is a safe play. But I would only add more once the trend actually turns up and shows strength in terms of price and volume action.

If you would like to get my weekly analysis on precious metals and the board market be sure to join my free newsletter at www.TheGoldAndOilGuy.com

Chris Vermeulen

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The Next Major Move in Precious Metals Is Close

After making new highs about a year ago we have seen Silver and Gold consolidate for roughly the last twelve months.  Technically, it would typically be a bullish scenario with gold from the stand point that the last 12 months’ price action was a sideways consolidation in a bullish pennant formation.  However over the last year we have witnessed a series of lower highs and increasingly tested supports levels around $150 on GLD which raises caution.

  Click Gold Chart for Full Size

With the fed pulling any extensions on further quantitative easing in the form of QE3 or other programs, the bullish case has lately been criticised.  However I am still a firm believer that gold in most respects is a currency, and the only one that can maintain its value.  There are very serious issues looming in Europe and across the world that are far from resolution.  With few tools left in the toolbox to stimulate world economies, further easing can never be ruled out.

Silver, after breaking through strong resistance around $19- $20 in September 2011 went almost parabolic in spring 2011 prior to giving up most of its gains in the last year.  There seems to be significant support around $26 on SLV, however this level has been tested quite frequently over recent months and this again raises caution.  While silver owes some of its moves to its industrial application, the high correlation between the two metals is not to be ignored.

 Click Silver Chart for Full Size

I think the long-term trade will be long in both metals, but I’m waiting to see a significant breakout out of these consolidations on heavy volume to confirm a direction.  I would like to see both precious metals break out of their respective consolidations and ultimately have further confirmation in the USD.  Any major headlines over the next couple months involving Europe or quantitative easing may provide us with the trigger for the next big move.

Get My FREE gold cycles and trading analysis here: www.GoldAndOilGuy.com

Chris Vermeulen

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Gold & Silver on the Verge of Something Huge!

Gold and silver have taken more of a back seat over the past 12 months because of their lack of performance after topping out in 2011. Since then prices have been trading sideways/lower with declining volume. The price action is actually very bullish from a technical standpoint. My chart analysis and forward looking forecasts show $3,000ish for gold and $90ish for silver in the next 18-24 months.

Now don’t get too excited yet as there is another point of view to ponder…

My non-technical outlook is more of a contrarian thought and worth thinking about as it may unfold and catch many gold bugs and investors off guard costing them a good chunk of their life savings. While I could write a detailed report with my thinking, analysis and possible outcomes I decided to keep it simple and to the point for you.

Bullish Case: Euro-land starts to crumble, stocks fall sharply sending money into gold and silver which are trading at these major support levels which in the past triggered multi month rallies.

Bearish Case: Greece, Spain and Italy worth through their issues over the next few months while metals bounce around or drift higher because of uncertainty. But once things have been sorted out and financial stability (of some sort) has been created and the END OF THE FINANCIAL COLLAPSE has been avoided money will no longer want to be in precious metals but rather move into risk-on.

Take a look at the gold and silver charts below for an idea of what may happen and where support levels are if we do see money start to rotate out of metals in the next 3-6 months.

Gold Forecast

Silver Forecast

Over the next few months things will slowly start to unfold and shed some light on what the next big move is likely going to happen to gold and silver.

The price movements we have seen for both gold and silver indicate were are just warming up for something really big to happen. It could be a massive parabolic rally to ridiculous new highs in 2012/2013 or it could be a huge  unwinding of the safe havens as countries sort out their issues and the big money starts moving out of metals and into currencies and stocks.

Only time will tell and that is why I analyze the market multiple times per week to stay on top of both long term and short term trends. So if you want to keep up with current trends and trades for gold, silver, oil, bonds and the stocks market checkout TGAOG at: http://www.thegoldandoilguy.com/free-preview.php

Chris Vermeulen

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Gold & Gold Miners Are Closing in on a Major Bottom

“You can’t understand what lays ahead if you don’t understand the past”

            ~  Satellite,  Rise Against  ~

 

Members of my service as well as long time readers know that I do a lot of analysis based on the past. I am constantly looking at long-term historical price charts and data. As a trader, I am always looking for an edge.

Obviously the keys to long-term success involve proper position sizing, risk management mechanisms, and ultimately leveraging probability. Professional traders are masters of these tenets. These characteristics are what separate successful traders from average traders over the long haul.

Sometimes through my rigorous analysis I come across price charts and oscillators that help put together a picture that helps shape my view of the marketplace. The past few months have been some of the most difficult market conditions that I have seen in some time.

The “wall of worries” permeates the financial landscape as risk at present seems unprecedented. The list of macroeconomic concerns ranges from the European sovereign debt crisis to escalation of military action in the Middle East.

I could probably write an entire article about the various risks that plague global financial markets at present, but I try to focus on the positive in any situation. Right now remaining optimistic is a daily battle amid the constant barrage of depressed economic data. Instead of focusing on all of the various risks, I focus on finding opportunities where probabilities are favorable based primarily on historical price data, cycle analysis, and tape reading.

Back on April 9th I proffered an article that discussed my expectation that the U.S. Dollar Index would rally while risk assets such as equities and oil prices would collapse. Additionally I commented on my expectations for weakness in gold, silver, and the entire mining complex. I was wrong about the timing of the U.S. Dollar’s advance, but the ultimate price action analysis was correct.

The following quote came from that article, “As shown above, I believe that short term targets to the downside are likely somewhere in the 1,475 – 1,525 price range. I think gold will find a major bottom near these levels and a strong bounce will play out.” (Click here to view the entire article)

When I originally wrote that article referring to a decline in gold prices gold futures were trading around 1,630 an ounce. Price rallied sharply higher after my article went public, but fast forward to today and my concerns appear to be well founded. I am a long-term gold bull and I ultimately believe that new highs will occur in the future. However, gold and gold miner’s may have further to fall before they find major support.

As stated above, my original expectations for the Dollar Index did not happen in the time frame I was anticipating. However, the belief that a rally was forthcoming proved to be accurate as can be seen from the price chart of the U.S. Dollar Index shown below.

U.S. Dollar Index Daily Chart

Traders Video Analysis Chart

 

 

As can be seen above, the price action is confirming serious strength. The weekly close on Friday saw the Dollar close above a key short-term resistance level. Additionally I would point out the double bottom that has been carved out on the chart above which is also bullish. Should resistance near 80.76 give way to higher prices a test of the recent highs is quite possible.

The technical picture suggests higher prices in the near term for the greenback. From a fundamental  viewpoint, recent economic data also suggests that higher prices may await as one the largest weekly debt issuance of 2012 among sovereigns within the Eurozone will transpire next week. If any of the debt auctions go poorly it will reflect negatively on the Euro currency and help push the Dollar higher.

Most of the debt issuance is outside of the 3 year maturity window so the LTRO justification to encumber risk does not apply. Next week we will find out just how serious investors are about accepting default risk on European debt instruments. I would be shocked if the ECB sits idly by, but the sheer amount of capital required to safeguard debt issuance next week is extreme, even for a major central bank.

The Euro currency continues to fall and has broken key resistance around the 1.30 price level on the EUR/USD currency pair. Price is not collapsing as of yet, but we are seeing a slow and steady slog lower for the Euro. This price action serves to boost the Dollar which ultimately places downward pressure on risk assets such as equities and oil. Additionally, it reduces the valuation of gold. The daily chart of gold futures is shown below.

Gold Futures Daily Chart

Gold Trading Video Chart

 

The recent price action in gold has been quite ugly and price is resting at key support stemming from an intermediate-term descending channel shown above. Should the lower bound break to the downside a sharp move lower could play out.

It is important to remember that gold is coming off a monster multi-year bull run and it only serves to make sense that a nasty pullback that shakes out the bulls would be forthcoming. I continue to believe that strong support and buyers will come back into gold around the 1,450 – 1,550 price range as significant long-term support levels should hold up prices. The key support zone is clearly illustrated in the chart above.

I continue to wait for price to reach that key support level and based on the current proximity those support levels are magnetizing price toward them. When long-term support / resistance levels are near price a test is a common occurrence. The most important question to ask is whether the support zone shown above will hold, or will even lower prices ultimately play out?

Gold and silver both are starting to become oversold on the daily time frame. While the gold bugs have been feeling pain the past few weeks, the gold miners have been taken out back to the woodshed for a good whipping. The miners have been absolutely crushed in 2012 .

My long term analysis revealed something quite extraordinary on the longer term weekly chart of the HUI gold mining index which I believe is critical for readers to watch and monitor. We are nearing valuation levels based on the true strength index that have not been seen since the market crash that took place back in 2008. The weekly chart of the gold bugs index is shown below.

Gold Bugs Index Weekly Chart

 

As can be seen above, the Gold Bugs Index (HUI) has been under considerable selling pressure since early September of 2011. However, note how low the True Strength Index is based on 5 years of price data. We are nearing the same level that we saw back in 2008 which marked a major bottom that ultimately resulted in a monster move to the upside for the gold miners.

I am of the opinion that this chart demonstrates quite clearly that a great buying opportunity for gold, silver, and the miners is likely going to present itself in the near future. I will be watching this price relationship over the next few weeks waiting for a strong entry point for a longer-term purchase. After this pullback concludes, the potential returns that could occur in gold, silver, and the miners could be breathtaking.

With 3 clear support levels, a defined risk approach could be used in order to scale in or to reduce market risk should prices continue to move below each support level. While the time is not right just yet, more than likely a solid long-term risk / reward trade may very well present itself in the precious metals and mining space. I am likely a bit early, but the ultimate end game as it relates to fiat currency is documented throughout history. The final result has a finality that few truly comprehend.

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Happy Trading and Investing!
JW Jones & Chris Vermeulen

This material should not be considered investment advice. J.W. Jones is not a registered investment advisor. Under no circumstances should any content from this article or the OptionsTradingSignals.com website be used or interpreted as a recommendation to buy or sell any type of security or commodity contract. This material is not a solicitation for a trading approach to financial markets. Any investment decisions must in all cases be made by the reader or by his or her registered investment advisor. This information is for educational purposes only.