Gold Prices This Week And Next Week’s Outlook

Last week we discussed the reasons that the gold sector is not a ‘buy’ during inflationary phases where risk ‘on’ items from commodities to emerging markets to broad stock markets are also rising with the inflationary tide. With a recent tamping down of inflation signals it is time to watch gold, silver and the miners more closely as other markets come under stress.

Bear in mind that if the stock market is topping (certain work done in NFTRH shows that potential if not probability) it is likely to be a long process of volatile ups and downs. So gold bugs need to be patient and try to focus on buying the downside washouts, especially if they come during an anti-inflationary or deflationary backdrop. Reference 2001, Q4 2008 and Q1 2016 for examples of varying intensity.

Moving on to the daily chart of gold we find the metal having dropped to near a key support area (1290 +/-) at the 200 day moving average. I’d like to see a firm hit of the SMA 200 to call support successfully tested. Alternatively, a rise above last week’s high would set gold on a bullish path.

As for silver, it tested a well defined support area but as usual with the wilder precious metal, it has the potential for a plunge before the next rally gets going (as was the case in July and December prior to rallying).

The reason I’ve been focusing on silver in this gold-focused column is because it appears to be in a better risk vs. reward setup than gold per the Commitments of Traders data shown on the graph below.

While gold’s CoT is only fair, Silver’s has crept to similar levels to those it registered prior to the summer rally and the December seasonal rally that we successfully managed. Again, the yellow shaded areas above show that these buy setups came with a final plunge below support on both occasions. So don’t rule that out.

Going forward, it will be important to see the macro backdrop ease off of inflationary readings currently getting all the headlines.

We forecast 10 year yields to 2.9% and 30 year yields to 3.3% back in October when virtually no one was talking about rising yields and inflation. Now? With bond sentiment contrary bullish the play is crowed and just a whiff of disinflation would be positive for the gold sector if it impairs risk ‘on’ markets.

https://nftrh.com/2017/10/27/the-big-macro-play-ahead/

And we are finally at or near the targets of the first phase of the macro play. We also forecast the inflation trades, including the seasonal precious metals rally, to be a temporary thing. With the stock market having become more volatile, things are lining up for improved macro and sector fundamentals across the precious metals sector.

The caveats are the potential for a final drop as noted above, and that the vast majority of mining charts are not at all bullish yet. I believe that the entire post-2016 consolidation exists to weed out inflationists from gold’s investor base and it is a process requiring patience and perspective.

On the short-term, watch the support levels noted on first two charts of this article and watch counter-cyclical gold’s progress in ratio to more cyclically oriented items like Copper/Industrial Metals and Palladium. Gold miners especially, are counter-cyclical and not a stellar performer in a cyclical inflationary phase.

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