UPDATE ON THE PRECIOUS METALS MARKET (4:30 pm EDST)
The precious metals market continues to be very difficult to call due to currently ambiguous cycle patterns in the charts of both silver and gold as well as mixed bullish and bearish technical signals also manifesting in these charts. Not surprisingly, several of the analysts I follow closely and respect are also stating different opinions about where these metals are heading short-term and medium-term (although their longer-term views are mostly bullish).
As I stated in yesterday's blog, last week's lows in both gold and silver ($1162 and $14.65, respectively) could have been a significant medium-term cycle bottom (and possibly a longer-term bottom as well), and both metals could be starting a significant rally now. But these metals are also pushing higher into the center of this week's reversal zone which means they could suddenly reverse back down and take several more weeks (or more) to find their final cycle bottoms. COT (Commitment of Traders) charts are quite bullish right now for both gold and silver, and this supports a rally; however, other technical signals look quite bearish for gold and especially silver. One way to interpret these contradictory signals would be a short-term rally that would exhaust itself early and then turn south. The question then becomes whether or not it is worth going long for this rally. If one metal can make a new low without the other (bullish divergence) by next Wednesday (the end of the reversal zone), it may be worth going long. Otherwise, I think I'll remain on the sidelines and wait for lower lows and a possible cycle bottom in late September.
The U.S. Dollar Index may help us gauge the movements of gold and silver this week. The dollar recently "broke out" and through a strong resistance line at 95 and touched 96.78 last Tuesday. Over the last several days it has fallen back to that 95 area. There is support there as well as at 94.5 and then 94. If the dollar pushes a bit lower to one of these supports, gold and silver could rally a bit more. But we need to note that we are now in a reversal zone for currencies (Aug. 21 - 29) so the greenback could find support over the next several days and then reverse back up, sending gold and silver prices back down. Another possible (but unlikely) scenario that would be bullish for precious metals would be to see the dollar break and close below 94. That could signal the start of a breakdown in the U.S. dollar. This is unlikely to happen, though, as the new Federal Reserve Chairman Jerome Powell appears hawkish and intent on raising interest rates.
The purpose of this update is not to confuse or frustrate traders but to hopefully give more insight into this market and help readers understand why I am remaining on the sidelines.
The precious metals market continues to be very difficult to call due to currently ambiguous cycle patterns in the charts of both silver and gold as well as mixed bullish and bearish technical signals also manifesting in these charts. Not surprisingly, several of the analysts I follow closely and respect are also stating different opinions about where these metals are heading short-term and medium-term (although their longer-term views are mostly bullish).
As I stated in yesterday's blog, last week's lows in both gold and silver ($1162 and $14.65, respectively) could have been a significant medium-term cycle bottom (and possibly a longer-term bottom as well), and both metals could be starting a significant rally now. But these metals are also pushing higher into the center of this week's reversal zone which means they could suddenly reverse back down and take several more weeks (or more) to find their final cycle bottoms. COT (Commitment of Traders) charts are quite bullish right now for both gold and silver, and this supports a rally; however, other technical signals look quite bearish for gold and especially silver. One way to interpret these contradictory signals would be a short-term rally that would exhaust itself early and then turn south. The question then becomes whether or not it is worth going long for this rally. If one metal can make a new low without the other (bullish divergence) by next Wednesday (the end of the reversal zone), it may be worth going long. Otherwise, I think I'll remain on the sidelines and wait for lower lows and a possible cycle bottom in late September.
The U.S. Dollar Index may help us gauge the movements of gold and silver this week. The dollar recently "broke out" and through a strong resistance line at 95 and touched 96.78 last Tuesday. Over the last several days it has fallen back to that 95 area. There is support there as well as at 94.5 and then 94. If the dollar pushes a bit lower to one of these supports, gold and silver could rally a bit more. But we need to note that we are now in a reversal zone for currencies (Aug. 21 - 29) so the greenback could find support over the next several days and then reverse back up, sending gold and silver prices back down. Another possible (but unlikely) scenario that would be bullish for precious metals would be to see the dollar break and close below 94. That could signal the start of a breakdown in the U.S. dollar. This is unlikely to happen, though, as the new Federal Reserve Chairman Jerome Powell appears hawkish and intent on raising interest rates.
The purpose of this update is not to confuse or frustrate traders but to hopefully give more insight into this market and help readers understand why I am remaining on the sidelines.
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