Gold Price Forecast: Will Gold Prices Ever Bottom?

Monday, July 16, 2018

gold price analysis

The 2-month assault on gold seems never-ending. Investors (including myself) have exceeded their breaking point. From a sentiment point of view, nearly everyone is bearish. I’ve seen this scenario play out many times. I can assure you, prices will find a bottom...if they haven't already.

It’s been 30-weeks since the last 6-month low (December). The intermediate cycle has averaged about 23-weeks, so we are well overdue for a bottom. Interestingly, while gold crashed nearly 10% in 2-months, gold miners remained relatively stable. Currently, they linger just 6% below their April highs; their resilience should not be ignored. It speaks of a hidden energy that once loose, should deliver brilliant gains.

Platinum prices are also telling a story (see below). Prices peaked 10-years ago at $2,286, and they are currently trading around $830, well below the price of gold. In fact, the Gold/Platinum ratio reached a record high. However, the most bullish aspect, in my opinion, is the COT report. Commercial traders were net short over 60,000 in August 2016. They have unwound their short positions and are now net long. The last time they were net long was in 2004. Furthermore, large speculators are net short a record-breaking 6,876 contracts. Together, it paints a bullish story for this very unloved precious metal.

There were subtle signs of bottoming on the weekly charts. Both gold and silver produced weekly outside reversals. Now, this doesn’t guarantee a low, but more times than not, it signals a trend change. To support an immediate low, gold needs to first rally and close above $1248.50. Then prices would have to recapture and maintain the $1260 level for a few days.

US Dollar

The dollar tested the 95.00 level for the third time and produced a bearish shooting star. The topping pattern has begun to take on the shape of a head and shoulder top. A close below 93.75 would support a breakdown.

Gold Price Weekly Chart

Gold prices formed a weekly outside reversal. An outside reversal occurs when prices exceed both the high and the low of the previous week. More times than not it signals a trend change.

Gold Price Daily Chart

On Friday gold prices made a new low ($1,236.20) but managed to close just above the July 3rd low. Technically, this meets the requirements for a marginal new low (possible reversal). Also, prices formed a bearish engulfing candle. Bearish engulfing patterns are usually seen at tops. However, they occasionally appear at bottoms as a trend weakens. Bulkowski calls it the last engulfing bottom. Closing above $1,248.50 early next week would be the first step in establishing a low.

Silver Price Weekly Chart

Silver prices closed lower for the 5th straight week and formed an outside reversal candle. There is excellent support between $15.65 – $15.80. The pieces for a bottom are in place.

Silver Price Daily Chart

Like gold, silver prices formed a bearish engulfing candle (possible last engulfing bottom) on Friday and made a new marginal low. Closing above $16.02 is the first step in establishing a low.

Platinum Price Long-Term Chart

Platinum has been the worst performing precious metal for some time. Prices are at long-term support, and the COT picture has improved dramatically. Now, this doesn't guarantee an immediate bottom, but I believe the bear market is about over.

Platinum / Gold Ratio

The Gold/Platinum exceeded 1.50. Meaning, gold is 50% more expensive the Platinum. There are a couple of ways to take advantage of the current situation. If you're a long-term accumulator of metals, perhaps you'd want to consider buying a little platinum instead of gold. The premiums for platinum coins are a bit higher, and they are less available, but it could be a sound long-term play if the ratio returns to normal.

Another way is to trade or exchange some of your physical gold for platinum. Of course, you need to be aware of any tax implications, but it's something to consider if you have a 10-year+ time horizon. If the ratio descends back below .50 (Platinum is double the price of gold), you could exchange your platinum holdings back into gold. Now, this is just a theoretical strategy. Please contact a professional investment advisor before attempting either of these strategies. In full disclosure, I exchanged some of my gold holdings into platinum last week.

Platinum COT Picture

Here is a chart of platinum courtesy of www.barchart.com. Note how in January 2013 and August 2016 Commercial Traders (smart money) had massive short positions (50,000+ contracts) while the Large speculators (dumb money) built record longs. Commercials have reduced their shorts from 60,317 (August 8th, 2016) and have become net long (366 contracts). Their first net long position since June 2004. Large speculators have shifted from net long 55,949 (2016) to a record net short 6,867 contracts.

HUI/GOLD Ratio

The HUI/GOLD ratio finished the week at .1398, just above .1397 support. The bullish potential endures if the ratio maintains the .1390 – .1397 area. If achieved, I’ll consider this a successful backtest of support and anticipate a decisive breakout above the long-term blue trendline.

GDX

Monday's breakout attempt failed, and prices were pushed back into consolidation. However, miners continue to tell a very bullish story. Prices merely consolidated during the 2-month attack on gold. The price action suggests significant strong-hand accumulation. Miners could explode higher once gold finally sets a low.

GDXJ

Though the last 2-months have been painful, juniors are only 6% below their April high. I've seen GDXJ rally 6% in just one or two days...so prices could see fresh highs quickly once gold establishes a low.

We’ve weathered a significant storm over the last 2-months. The suffering should become a distant memory if metals and miners perform as expected. The stage is set for meaningful lows, and I believe prices will end the year much higher.

For more commentary and periodic updates, please visit us at www.GoldPredict.com.

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AG Thornson

AG is the editor of www.GoldPredict.com report and creator of the Gold Predict Color Code. His members receive frequent updates and commentary regarding the gold, silver, and mining sectors. At his heart, he is a technician and prides himself on making his analysis easy to understand through the use of adaptive and creative charting techniques. You can reach AG at info@GoldPredict.com.