Gold and Silver Bounce Up On Short Covering
Gold and silver prices were ending the U.S. day session higher, boosted by short covering in the futures markets and by some safe-haven buying interest amid stepped-up geopolitical worries. December Comex gold was last up $8.70 an ounce at $1,283.70. December Comex silver was last up $0.13 at $16.925 an ounce.
There were some significant geopolitical events occurring over the weekend. While the world stock markets have so far mostly shrugged them off as nothing new or major, the gold and silver markets did get some safe-haven buying support.
Thousands of Spaniards on Sunday protested any secession of Catalonia, after that region voted to be independent recently. The U.S. and Turkey saw a diplomatic row escalate over the weekend when both countries put restrictions on visas for the other country. The Turkish lira dropped sharply Monday on the situation.
The U.S.-North Korea war of words continued during the weekend, with both sides spouting off. President Trump said in a tweet there is only “one thing to do” with North Korea.
Trump also got into a Twitter tussle with U.S. Senator Bob Corker. Corker said the White House is like “adult daycare.” There are growing notions that the Trump White House is increasingly chaotic.
All of the above support ideas of continuing safe-haven demand for gold and to a lesser degree silver.
The U.S. dollar index was lower in early-afternoon U.S. trading, on a normal corrective pullback after hitting a 2.5-month high last Friday. The other key outside market on Monday sees Nymex crude oil futures prices firmer. Oil bulls are fading, however. There are worries recent hurricanes that struck the U.S. will curtail petroleum refining capacity, which means less demand for crude until those refineries are 100% back on line.
The U.S. government was closed for the Columbus Day holiday Monday. However, most markets were open.
Technically, December gold futures prices closed near mid-range. Bears still have the overall near-term technical advantage. A four-week-old downtrend is still in place on the daily bar chart. Gold bulls’ next upside near-term price breakout objective is to produce a close above solid technical resistance at $1,300.00. Bears’ next near-term downside price breakout objective is pushing prices below solid technical support at $1,250.00. First resistance is seen at today’s high of $1,288.00 and then at $1,293.00. First support is seen at today’s low of $1,277.70 and then at $1,270.00. Wyckoff’s Market Rating: 4.0
December silver futures prices closed near mid-range today on short covering. The silver bears still have the overall near-term technical advantage. Prices are still in a four-week-old downtrend on the daily bar chart. Silver bulls’ next upside price breakout objective is closing prices above solid technical resistance at $17.50 an ounce. The next downside price breakout objective for the bears is closing prices below solid support at $16.00. First resistance is seen at today’s high of $17.03 and then at $17.295. Next support is seen at today’s low of $16.765 and then at $16.50. Wyckoff’s Market Rating: 4.0.
December N.Y. copper closed up 5 points at 302.95 cents today. Prices closed nearer the session high today. The copper bulls have the firm overall near-term technical advantage. Copper bulls’ next upside price objective is pushing and closing prices above solid technical resistance at the September high of 317.85 cents. The next downside price objective for the bears is closing prices below solid technical support at 290.00 cents. First resistance is seen at last week’s high of 305.60 cents and then at 307.50 cents. First support is seen at 300.00 cents and then at 297.50 cents. Wyckoff’s Market Rating: 7.0. – Jim Wyckoff
Is Silver Turning Around?
Technical analyst Clive Maund discusses movements in the silver price.
There was more evidence of a turn in silver than gold on Friday, when a more obvious reversal candle appeared on its chart. On the 6-month chart we can see that a long-tailed candle occurred that approximates to a bull hammer where the price closed not far off the day’s highs on the biggest volume for over a month. After its recent reaction this certainly looks like a reversal, especially as the downtrend channel has been converging. The earlier overbought condition has more than fully unwound and the price has dropped back into a zone of support.
There was an even more pronounced reversal candle on Friday in silver proxy iShares Silver Trust. . .
Like gold, silver is marking out a giant Head-and-Shoulders bottom pattern, but in silver’s case it is downsloping as we can see on its 8-year chart below, which reflects the fact that silver tends to underperform gold at the end of sector bear markets and during the early stages of sector bull markets. Prolonged underperformance by silver is therefore a sign of a bottom. This chart really does show how unloved silver is right now, but although the price has drifted slightly lower over the past several years, volume indicators have improved, especially this year, a positive sign. A break above the neckline of the pattern, the black line, will be a positive development, and more so a break above the band of resistance approaching the 2016 highs. Once it gets above this it will have to contend with a quite strong zone of resistance roughly between $26 and $28. Silver is among the most unloved of all metals, a situation that is not expected to continue, partly because silver bugs are manic-depressive and they have been depressive for a long time, meaning that it surely won’t be all that long until they are on the rooftops singing Happy Days are Here Again.
As with gold, silver’s COT structure has improved in recent weeks as the price has dropped, and although readings are still far from levels that can be described as outright bullish, they are considerably better than those for gold, which could be a sign that silver is set to outperform gold at last. . .
Extreme lows in the silver/gold ratio are reliable indicators of either a sector bottom or they can occur during the early stages of a sector bull market, as can be seen on the long-term silver over gold chart shown below, which goes back to late 1997. When a low in this ratio occurred in 2003, the sector was already in a bull market, but as we can see, it had much further to run. The next major low followed the 2008 market crash. More recently the ratio plumbed very low levels again at the end of 2014 and early in 2016, which marked the sector bottom after the brutal bear market from the 2011 highs. Right now it is only a whisker above these lows, which is a strong sign that another bull market is just around the corner.
Are Gold and the Dollar Rallying Together?
Technical analyst Clive Maund examines the relationship between the dollar and precious metals.
The last gold Market update almost a month ago called the intermediate top within a day, as you may recall, and the subsequent Gold and U.S. Dollar called the rally in the dollar the day before it started. Having seen a significant reaction back by gold, the question now is “Has it run its course?” The short answer to that is yes, although calling a bottom here is complicated by the fact that gold’s COTs have not eased as much on the reaction as we might have expected, and the dollar Hedgers’ chart is still flat out bullish for the dollar. What this means is that we may need to see some bottoming action by gold, even if it soon breaks out of its rather steep short-term downtrend, and another possibility that we will examine is that the dollar and gold rally in tandem, a rare circumstance that could be occasioned by an extreme development such as an attack on North Korea, although if this happens the peoples of Seoul and Tokyo will doubtless have more important things to think about than the price of gold.
On gold’s latest 6-month chart we can see how the reaction of recent weeks has retraced about 50% of the prior rally, as tensions with North Korea have temporarily eased. This reaction has more than fully corrected the overbought condition resulting from the rally, and has brought gold back into a zone of significant support just above its rising 200-day moving average, and with moving averages in bullish alignment, conditions generally favor a reversal and rally. The “spinning top” candlestick that occurred on Friday on increased volume may mark the turn, although the candlesticks that occurred on the charts for silver and silver proxies look like more convincing reversals.
An important factor having a bearing on the outlook for the precious metals was the nice reversal in copper on Thursday after a significant reaction, with it gaining nearly 3%…
Given that copper tends to lead other metals as it did on the last rally, this could well be followed by gold and silver reversing to the upside after their reaction back to support, despite the dollar looking like it has further to rally. Another positive factor for gold and silver is that there was a full moon late last week and the Precious Metals often reverse on either the new or full moon, although astrologically silver is ruled by the moon and gold by the sun, which may explain why the Incas, famous for their gold, worshiped the sun – which makes a lot more sense than many of the other things that get worshiped. If you think that is wacky, try this for size—eclipses are thought by many astrologers to be a baleful omen, and you may recall that on August 21st a total eclipse of the sun slashed right across the U.S. from coast to coast. Soon after, the country was clobbered by a succession of natural disasters, in addition to Donald Trump’s Tweetstorms, with three massively destructive hurricanes impacting Texas, then Florida, and lastly Puerto Rico. Coincidence? I think not.
On gold’s 8-year chart it continues to look like it is in the late stages of a giant Head-and-Shoulders bottom pattern. The buildup in volume over past 20 months certainly looks positive, especially over the past several months, all the more so because it has driven volume indicators higher, notably the Accum-Distrib line, which is not far off making new highs—exceeding its level at the 2011 peak. Once gold breaks above the resistance level approaching $1400 it will be on its way, although it will then have to contend another important band of resistance in the $1510 – $1560 range.
The latest COT chart for gold shows that, while positions have certainly eased on the reaction of recent weeks, they have not eased by as much as one would expect, which sounds a cautionary note and suggests that a rally now may be stunted, and followed by more basing action before a larger uptrend can gain traction. This accords with what we are seeing on the dollar charts, especially the latest dollar Hedgers’ chart.
The Market Vectors Gold Miners, GDX, which functions as a gold stocks index, is marking out a giant Head-and-Shoulders bottom that roughly parallels the one completing in gold itself. The fact that the price is still well below the strong resistance at the top of this reversal pattern means that prices for many gold (and silver) stocks are still very favorable. The volume pattern during the build out of this base pattern is very bullish, with big volume on the rise out of the low (Head) of the pattern, tailing off steadily as the Right Shoulder has formed.
The dollar looks like it has put in an intermediate bottom. On the 1-year dollar index chart shown below, we can see that it has broken out of its downtrend by a significant margin and looks like it may be marking out a Head-and-Shoulders bottom, although it is still too early to be sure. If it is then we will see a shallow dip to mark out the Right Shoulder of the pattern before it then turns higher.
The latest dollar Hedgers’ chart certainly looks bullish, with the large Commercial Hedgers having cleared out their short positions…
Chart courtesy of www.sentimentrader.com
Although we cannot reconcile this positive dollar outlook for the medium-term (long-term outlook remains bearish) with a positive outlook for the precious metals sector, there are times when the dollar and gold and silver rally together. This could happen for example if some drastic action is taken with respect to North Korea.
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