Gold Prices: The Next 3 Weeks Are Critical

Friday, June 10, 2016

The month of June will likely become a major inflection point for gold and silver prices. Gold is on the precipice of breaking out above the $1,307 level and confirming the beginning of a multi-year rally. However, if gold prices fail to breakout in June, they could fall back to support around the $1,100 level, and perhaps lower. Relax gold enthusiasts, this alternate scenario would simply be a fleeting washout event, and prices would bottom a few months later. Nevertheless, either outcome will lead to much higher gold and silver prices in the years to come.

Fake-Out Theory

For months, I’ve warned about the possibility of a fake-out move in gold prices. During my tenure as a commodity trader, I’ve witnessed unmerciful moves in precious metals. Gold and silver do not give up their spoils easily; investors must prepare for every conceivable situation.  Typically, before major bottoms, prices will enter a climatic selling event that completes the bear market phase. The move into the $1,045.40 low was mild and not what I’ve come to expect at a major turning point.  This gives me cause for concern.

Traders Preference

As an analyst, I diligently try to approach my work without bias. This is much easier said than done. As an investor, I want to see a selling climax unfold. These events represent the pinnacle of buying opportunity and a complete flushing out of sentiment. Though it would have been nice to enter at lower prices, what difference does it make if gold prices reach $10,000+ in the next 5-7 years? Believe me, there is still plenty of money to be made.

US Dollar

To begin the analytical portion of this article, I choose to start with the US dollar weekly chart. The reserve currency of the world has an inverse correlation to commodity prices, and therefore, is a necessary component when forecasting precious metal prices.

Weekly dollar prices formed a bearish engulfing pattern precisely where the 20 and 50-week moving averages made a bearish crossing. This has negative implications and supports a top in the U.S. dollar. A weak dollar will drive higher gold and silver prices. Note: Weekly dollar prices must close below the 91.88 low to confirm the double top formation.

Gold Prices

The Weekly Gold Chart has several negative factors supporting the fake-out theory. Gold prices need to breakout strongly above $1,307 to unwind this underlying technical weakness. Alone, the following issues are harmless developments, but when they appear simultaneously, it signals of a potential warning.

  • Gold prices successfully closed below the 10-week moving average only once during the correction from $1,306. Well over 90% of intermediate-term corrections see a minimum of two closes beneath the 10-week MA.
  • Slow Stochastics never reached oversold readings dropping into the recent low.
  • Prices rallied sharply into May, but fell just shy of breaking the 2015 Annual Cycle High of $1,307.80. This must be accomplished to reverse the long-term trend.
  • Negative divergences in Stochastics, MFI and On-Balance-Volume (OBV) indicators.
  • Weekly OBV dropped to a new bear market low, as prices moved higher.

Alternate Scenario

If gold fails to breakout above $1,307 in June, we could see the $1,045 low tested. If a selling climax pushes gold prices below the $1,000 level, I see excellent support between $855-$925. Consider cost-dollar-averaging into positions on sharp declines. I'd be surprised if prices stayed below $1,000 for long if the alternate scenario triumphs.

Summary

The odds favor major price lows having similarly formed during the fourth quarter of 2015 in precious metals and miners. The fake-out theory (alternate scenario), I’ve warned about, is rapidly losing its potential, and may be dismissed in the coming weeks. Impending political events could push the US dollar, gold, and silver prices powerfully in either direction. However, I'm not making any final decisions until after the Brexit vote on June 23rd. 

********

Gold-Eagle provides regular commentary and analysis of gold, precious metals and the economy. Be the first to be informed by signing up for our free email newsletter.
 

Free Gold-Eagle Newsletter!

  • Fresh weekly insights on gold, precious metals, and the economy
  • Leading authors from around the world
  • Always free
  • Stay informed!
 

 

AG Thornson

AG is an accredited CMT through the MTA and the editor of GoldPredict.com. His members receive daily updates and regularly scheduled reports 3-days a week. He prides himself on making his analysis easy to understand through the use of adaptive and creative charting methods. You can reach AG at info@GoldPredict.com.