Forecast: Gold Prices Are Approaching A Low

Gold finally broke the October low, and prices should bottom within the next 1-4 weeks. The low could arrive next week if prices suddenly spike below $1,215. In December 2015/2016 gold bottomed 1-day after the FED announced a rate hike (see chart). The Fed meets Wednesday, December 13th.

Conflicting Information: Previous rate hike timing supports a low next week, but the Commitment of Traders (COT) suggests otherwise. Commercial shorts in gold declined to 322,399 contracts last week. A sharp reduction from the previous 363,372 contracts, but still moderately high. I typically like to see commercial shorts drop below 250,000 contracts before entertaining a low. Consequently, gold prices may need to decline a few more weeks to unwind the commercial short positions properly.

Miners are also at a crossroads. On the one hand, positive divergences have formed, and the downtrend appears to be slowing. Yet, on the other hand, the structure remains vulnerable to a collapse below support. The HUI:GOLD ratio is flirting dangerously with a critical threshold.

Expect multiple updates next week. I'll issue a buy signal and provide an entry strategy if gold declines to our projected target zone ($1,210-$1,200). If prices don't bottom next week, then I will expect the 6-month low to arrive later in December or early January.

US Dollar

The dollar tested the 94.10 level and pulled back. Prices would have to rally and stay above 94.10 for a few days to neutralize the immediate downtrend. If established, prices should find resistance at the 200-day MA.

Gold Weekly Chart

The weekly chart broke October support and closed below $1,250. We should see commercial short positions drop below 250,000 (currently 322,399) before finding a bottom. Technical analysis supports a decline to the rising trendline around $1,200.

Gold Daily Chart

Prices are below the October low, but the bulls are yet to capitulate. Volatility will likely increase during next weeks FED meeting. Gold would have to close consecutively above the 200-day MA ($1,268.34) to suggest a premature bottom. Otherwise, we expect prices to continue lower towards the $1,200 level.

Fed Rate Hikes And Gold Prices

After slashing rates to 0%-0.25% in December 2008, the FED slowly started to advance rates in December 2015. The first-rate increase corresponded with a major bear market low in gold. Since then, the FED has risen rates three times. Gold has bottomed with each expansion, particularly if it transpired in December.

Silver Weekly Chart

The trend in silver is a mess, and there is no discernable pattern. Prices could drop and test the spike low ($14.34), but I'm not sure.

Silver Daily Chart

The MFI is oversold, and prices bounced after 8-consecutive down days. We could see increased volatility next week. Prices should bottom with gold. Whatever the case, physical silver is a good long-term buy at these levels.

GDX

Prices bounced Thursday and Friday after a sharp 2-week decline. Still, no evidence of a bottom but the MFI is diverging positively. If gold drops to $1,200, GDX should at least test and perhaps even break below $21.00.

HUI:Gold Ratio

The ratio fell below support Wednesday and Thursday. However, it managed to climb its way back and ended the week above support (0.1418). Declining below last week’s low (0.1390) might be enough to push GDX through important support around $21.00.

GDXJ

Juniors are attempting to bounce. The MFI and MACD are diverging positively. Momentum to the downside appears to be slowing. Prices would have to close consecutively above the $31.00 level to support a bottom.

Precious metals are approaching a low. The 4-year basing pattern is nearly complete in gold, and prices should break above $1,400 next year. I'll release our long-term prices forecast later in the week. Expect increased volatility surrounding Wednesday’s FED announcement.

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