Gold Price Forecast: Multiple Factors Support A Bottom

Monday, July 23, 2018

gold price analysis

The persistent 3-month decline in gold cut much deeper than I anticipated. As the cycle extended, gold broke key levels at $1280, and $1238. That gave the bears a voice, and we see renewed calls for a bear market and imminent collapse. I remain firmly bullish on the yellow metal and believe the washout period has ended.

Member after member reached out last week with their bearish fears and opinions…understandably. This prompted me to write the “Emotional Peak” article. Feelings were raw, and when sentiment reaches extremes, a reversal isn’t far off. Gold tagged $1,210 the very next day and then established a bullish engulfing swing low on Friday. I believe the market bottom on Thursday.

Friday’s COT report for gold displayed refreshing improvement. Commercial traders reduced their net short positions by roughly 27%. It now stands at -73,635 contracts, which is the precise level that accompanied the July 2017 low. As a reminder, after bottoming last July gold rallied from $1204 – $1362 in just 8-weeks.

The bullish case for platinum continues to astonish. Commercials increased their net long exposure from 366 to 3,170 contracts. The last time commercials were net long was in 2004 (316-contracts), and prices rallied from $800 to $2200 in 4-years. It looks like platinum in putting in a multi-year low; this should support higher gold prices.

Is this the time to be a contrarian? Maybe it’s me, but it seems like there are multiple calls for a breakdown in gold below $1200, and much lower. Perhaps it will, but what if prices bottomed Thursday at $1210, as I believe? The bears will push their shorts expecting another breakdown. If prices rally instead, they will need to cover these shorts into a rising market. That may provide the fuel for a short-covering rally. In that event, gold could rise just as sharply as it collapsed.

US Dollar Weekly Chart

Just as gold is testing its 200-week MA from the topside the US Dollar is testing the 200-week MA from the underside. Prices formed another bearish shooting star candle. To support a top, the Dollar needs to close below the 10-week EMA on a weekly basis.

Gold Symmetrical Base

The recent breakdown was unforeseen on my end for sure. However, it brings a sort of symmetry to the 5-year basing pattern. If gold prices form a bottom here, I can make a case for a low-profile V-basing pattern with trendline encroachments on either end. If correct, and the model continues to mirror the left side, then we should see an accelerated uptrend that breaks above the $1370 level later this year.

Gold Price Weekly Chart

There’s no denying gold breached some critical levels. Sentiment is very depressed, and there are multiple calls for a bear market. Gold prices are severely overdue for a low. The COT numbers are favorable and at the precise level that shaped the July 2017 bottom. Gold attacked but closed just $4.00 below the 200-week MA. A bottom is likely, and critical resistance now resides at $1313.

Critical resistance at $1313: To silence the bears, gold needs to recapture the $1313 level. That would setup a retest and likely breakout above $1370 later this year. Failing to regain $1313 by September/October would open the door to more consolidation and perhaps the bearish arguments. The green and red numbers represent commercial shorts. 

Gold Price Daily Chart

 I hate to put gold in a box, but it’s put up or shut up time for the yellow metal. Prices peaked at $1377.50 2-years ago; we are yet to see a higher high. My long-term outlook called for a bull market breakout above $1370 in 2018. I’m sticking with this call, but right now…gold is the underdog. If prices aren’t back above $1313 by September/October, I’ll have to dampen my bullish fervor.

On a positive note, prices formed a bullish engulfing swing low. A bottom is highly probable. This is the first legitimate swing low since the breakdown below $1281. Prices could retest the $1,210 level this week, but gold would have to close decisively below $1210 to nullify Friday’s bullish reversal. If my bullish expectations are correct, then I’d expect to see a sharp advance over the next several weeks that catch the bears off-guard.

Platinum Price Weekly

There is long-term support in Platinum prices between $750 – $800 dating back to 2004 (see Platinum update). Prices formed a probing hammer reversal candle, and a weekly close above $836 will create an intermediate low. The COT report grew even more bullish. Commercials increased their net longs from 366 to 3,170 contracts. The last time commercials were net long was in 2004 (316-contracts), and prices rallied from $800 to $2200 in 4-years.

Silver Price Weekly Chart

Like gold, it’s put up or shut up time for silver prices. Silver prices have formed multiple 6-Month lows in the $15.00 range. Prices likely reached another low. A weekly close above $15.90 will establish a bottom and support another breakout attempt (above the blue trendline) in the weeks to come.

On a side note: I recently went out to dinner and paid $30.00 for a specialty pizza. I was amazed that for the same amount of money I could have purchased 2-ounces of silver. Making a pizza is much easier than finding, mining and refining an incredibly useful and strategically significant precious metal…is it not? The value in silver defies logic.

Silver Price Daily Chart

Silver prices recovered the majority of Thursday’s washout and nearly formed a bullish engulfing day. A daily close above $15.60 will install a daily swing low and promote a bottom.

GDX

Miners were sluggish on Friday as gold formed a swing low. Nevertheless, I think we are near a bottom. Closing above $21.92 will harvest a swing low. If my bullish assumptions for gold are correct, miners should be nearing a sharp multi-week advance.

GDXJ

Juniors overshot their lower boundary like GDX. We need a close above $32.37. If gold formed a meaningful bottomed as I suspect, prices should breakout above the upper boundary in August.

HUI:Gold Ratio

The HUI/GOLD ratio is still holding support around .1390. A breakout above the blue trendline in the coming days/weeks would signal the onset of a noteworthy advance.

In summary, gold prices are incredibly ripe for a low. The 3-month decline cleansed bullish sentiment, and bearish calls abound. The COT setup is favorable and comparable to the July 2017 bottom. Platinum is an extreme bargain as it trades $400 below the price of gold. With everything considered, the contrarian in me is screaming buy-buy-buy, not sell-sell-sell.

For more commentary and periodic updates, please visit us at https://goldpredict.com/.

********

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 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.