Spot gold is consolidating after retreating below $1600/ounce on the hourly chart. Breach of short-term support at $1590 would warn of a down-swing to test medium-term support at $1550 — and primary support at $1500.
On the monthly chart we can see that breach of $1500 would signal a primary down-trend. A 63-day Twiggs Momentum fall below -10% would also suggest a primary down-trend, while reversal above zero would suggest further ranging between $1500 and $1800.
Silver is also headed for a test of primary support — at $26/ounce — but 63-day Twiggs Momentum respect of -10% would continue the long-term bullish divergence, suggesting a new up-trend.
I am not yet convinced that gold is headed for a primary down-trend. We may be in a low-inflation/deflationary environment right now but how long will it take for central bank expansionary policies to overcome this? Watch out for bear traps. Respect of primary support around $1500 could present a buying opportunity.
Crude Oil
Jeremy Grantham (GMO) reminds us, in a recent BBC interview, not to underestimate the importance of crude oil. Crude represents roughly half of the cost (extraction, shipping, etc.) of other major commodities traded, but crude oil itself also represents half of the value of all commodities traded. When crude prices rise they do serious harm to the global economy.
Brent Crude retreated below support at $117/barrel, on concerns over the global economy. Expect medium-term support at $90/barrel for Nymex and $112/barrel for Brent crude (the green line) but only failure of primary support at $84 and $106 would signal a primary down-trend. Falling crude would be a bearish sign for gold: demand for gold increases when crude rises.
In your monthly chart of gold you comment, “A 63 day Twiggs Momentum fall below -10% would also suggest a primary down-trend,-” Yet the chart shows such a fall in Sep 2008 and it did NOT signal down-trend; but, rather,completion of correction and a four year major bull market in the price of gold.
What factors cause you to reject this possibility and put forward a novel interpretation this time?
I could have expressed that better: “A 63-day Twiggs Momentum fall below the 2012 low, around -10%, would also suggest a primary down-trend…”
The 2008 decline was a different animal. The bear market was signaled by TMO decline below zero in August 2008 and was followed by a sharp fall. A similar signal occurred in December 2011 but this turned out to be a bear trap with gold finding support at 1500/1550. Gold then started ranging between 1500 and 1800, with TMO oscillating between -10% and 10%. Breakout from that channel will signal future direction.
The 1500/1550 support level was re-tested several times in mid-2012, setting up a strong primary support level. Another successful test would be a strong bull signal. Breakout below 1500 is less likely but would mean all bets are off.
Surely the market is aware of the potential money creation effects on prospective inflation . That gold behaves so badly now is cause for pessimism – the opposite of your view.
Gold formed several large consolidations over the last 10 years (esp. on a log chart) and has broken out to the upside each time. The bull-trend has been fueled by QE which is unlikely to end any time soon. Not saying it can’t go down, but probabilities are still less than even.