Gold & Silver Market Update
This is not the time to get bogged down with minor details, and thus risk losing sight of the big picture, which is that gold is now in a powerful uptrend that has a lot further to run. For this reason we will only look at long-term 8-year charts in this update.
On the "normal" 8-year chart in dollars, gold is clearly well on its way, and to some it may look overextended already, after its strong advance of recent weeks, but there are 2 important factors that we will consider that are not on this chart, which indicate that it is likely to ascend to much higher levels before this uptrend is over. Charts don't come much more bullish than this - the steady ascent from the low early in 2001 through 2005 was followed by a dramatic acceleration in the rate of advance, and this acceleration can be expected to continue as the Fed continues to undermine the dollar with low interest rates in a desperate attempt to rescue the major banks and Wall St, and as money supply continues to balloon, not just in the United States, but worldwide. There was considerable fanfare some days back when gold broke out above its nominal highs of early 1980, but this was actually a fairly meaningless event given that the money supply has expended enormously and the dollar has been savaged in the years that have followed, so that if gold were just to attain its 1980 value in real terms, it would have to ascend to something like $4000 an ounce. Thus it is clear that there is still plenty of upside potential, especially as the world financial system is in a much more fragile state than it was back in 1980.
When we look at the 8-year gold chart measured against the Euro, we see that gold has only just broken out against this currency, and it is clear that it has the potential to rise much further. Even if it only succeeds in staging an advance of similar magnitude to that which occurred in 2005 - 2006, we are talking about very substantial gains from here, and with the money supply set to expand rapidly in the Eurozone as it battles to remain competitive, there is a good chance that the uptrend will be even stronger. The growth in money supply is a global phenomenon stoking the fires of inflation worldwide, which will of course make gold the natural refuge for those seeking to preserve capital - and not just preserve it, but benefit from capital gains as well - and gold rising in real terms must eventually suck in a lot of hot speculative money so that a continuation of strong gains in time becomes a self-fulfilling prophecy.
With regard to gold's target for this powerful uptrend (not its ultimate target), readers are referred to the Silver Market update, for gold can be expected to top out at about the same time as silver, which will probably be when silver hits the top of its major uptrend channel. Note that gold's ascent will slow ahead of silver topping out, as it leads silver, which tends to makes its strongest gains in the later stages of uptrends in gold.
With many gold stocks approaching normal overbought extremes on short-term oscillators, a lot of traders are wondering if the time has come to take profits, in expectation of a reaction. The view here is that although this would normally be the case, the current uptrend is destined to be a long and powerful upleg, and corrective action is therefore likely to be modest and probably only involve periods of consolidation, that may even be upwardly skewed, and thus leave behind premature profit takers who may find themselves waiting for a reaction that never happens. A good example of this is provided by StreetTracks, which was recommended on the site as a strong buy on December 20th. Take a look at the StreetTracks chart shown here and compare what is going on now to what happened back in September. In early to mid-September StreetTracks looked critically overbought on its RSI and MACD indicators shown at the top and bottom of the chart - it was, but after 2 or 3 weeks of sideways consolidation it continued much higher. This is what is considered to be likely to happen now not just with StreetTracks, but with a wide range of larger gold stocks.
The StreetTracks chart posted on the site on 20th December is shown below...
Silver is at last breaking out of its massive 20-month consolidation pattern. It tried to do this last November, but the attempt was premature and it slumped back into pattern. Now it is expected to succeed and the advance should accelerate noticeably going forward.
The target for the major uptrend now just beginning is the top return line of the channel shown on the 8-year chart. This is obviously a very big move that will result in spectacular gains in silver stocks. This is nice to know because as gold and silver generally top out in unison, we can therefore expect gold to continue to advance until silver hits this top line, although as gold leads silver, it can be expected to slow as it approaches its target, even as silver continues to make strong gains.
There is a major technical development pending in silver that we should watch out for, and that is a breakout from its 20-month consolidation on the Euro chart. Not only will this event confirm the silver breakout on the normal dollar chart (although given what's happening to the dollar this can no longer be regarded as a normal chart), but it will also mark the point where "the afterburners kick in" and silver advance starts to accelerate dramatically.
is an English technical analyst, holding a diploma from the Society
of Technical Analysts, Cambridge, England. He lives in Chile.
Copyright ©2003-2011 CliveMaund. All Rights Reserved.
Charts courtesy of StockCharts.com.