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The U.S. dollar index has risen by more than a point from last Friday's low of 74.48, closing on Thursday at 75.63. RSI has crossed convincingly above 30, and MACD has also made a bullish crossover. Both indicators are showing positive divergence to the price, so the dollar could continue to rise.
Conversely, $GOLD (Stockcharts switched to the February 2008 contract this week) is showing weakness and has broken down again from its channel, closing on Thursday just above the Fibonacci 23.6% retracement level. RSI is falling toward 50, and MACD has turned back down.
Silver, too, is weak and below its broken trendline. RSI is breaking below 50, and MACD is falling.
GDX, though, appears to be trying to resist gravity. It closed near its 50-day MA and has traded in a range between about $46 and $49 for 13 sessions so far. RSI has been hovering around 50, and the MACD histogram is gradually rising.
Dow Theory Letters writer Richard Russell has been there, seen that. In remarks published at 321gold.com, he reminds us:
Gold closed above 800 in 1980 on only TWO DAYS. Gold closed on January 18, 1980 at a price of 830.00. Gold closed on January 21, 1980 at [a] price of 850. The next day gold closed at 737.50. Gold in 1980 never closed above 800 again! The price of gold at the end of January 1980 was $659.
Gold has never in all history ended a month at 800 [or] above. This Friday will mark the end of the month of November. If Friday's gold is at 800 or above, it will be the FIRST TIME GOLD HAS EVER CLOSED A MONTH IN THE 800s!
In the strongest up day for gold since February, the yellow metal launched off the bottom rail of its channel for a gain of $26.10 on Friday, closing at $824.70. RSI has risen convincingly above 50, and the MACD histogram is rising rapidly.
Gold looks set to test its recent high of $848, which coincides with the top of its channel, within a few days.
Silver rose less dramatically on Friday, peeking just above its broken trendline. Resistance around $14.70 appears to be holding silver back, although RSI has climbed back above 50 and the MACD histogram is rising gradually.
If silver manages to clear the psychological barrier at $15, it is likely to attempt a retest of the recent high of $16.27, near the top of the channel.
GDX also showed strength on Friday, gapping up at the open and closing at $48.85, its high of the day. It now faces Fibonacci resistance around $49, although RSI is back above 50 and the MACD histogram is rising rapidly. Note that the volume on Friday was less than half the recent average, so too much stock shouldn't be placed in that day's action.
The gold-mining ETF is clearly outperforming a very weak S&P 500 index. The GDX:$SPX ratio's RSI has bounced off 50, and the MACD histogram is rising steadily.
The U.S. dollar index plumbed fresh depths on Friday but managed to close at 75.04, just above its recent low. $USD formed a bullish doji candlestick resembling a hammer, which often heralds a change in trend. RSI remains below 30, however, and MACD is making a bearish crossover.
Let's review some weekly charts.
Gold's pullback has reduced the degree to which it is overbought. RSI has fallen back through 70, although it remains high at about 66. The MACD histogram is declining from very high levels.
Bottom line: The chart doesn't offer much reason to expect an immediate recovery in the yellow metal.
Silver broke down from its large triangle in May, backtested the broken trendline, then bottomed in August. This month, it broke out through the top of the triangle at its very apex, which often indicates a fakeout. Sure enough, its upward spike was short-lived, and silver has fallen back beneath the tip of the triangle. RSI turned back down from the level at which it has been rebuffed during the past year, and the MACD histogram is declining.
Bottom line: Silver looks weak.
Silver is falling against gold. The $SILVER:$GOLD ratio was dramatically repelled by its 50-week moving average and is now testing support near its 200-week MA. Although RSI was rebuffed at 50, MACD has made a bullish crossover and is still rising.
GDX, too, is in corrective mode and could fall further to retest the top rail of its long channel. RSI was repelled convincingly at 70, and the MACD histogram is in a steep decline.
GDX is also falling against gold. The GDX:$GOLD ratio, which failed to stay above its falling channel, is now below both its declining 50-week and 200-week moving averages. RSI has broken down below 50, and MACD is threatening to make a bearish crossover.
If GDX is leading gold, it would appear that it's doing so to the downside.
GDX broke out dramatically against the S&P 500 index this month, but the GDX:$SPX ratio formed an ugly shooting star and has fallen back to test the top rail of its channel. RSI has fallen back through 70, and the MACD histogram is declining.
Where the ratio goes from here could indicate to investors whether the gold miners can be relied upon as a safe haven in case of a prolonged decline in the broader stock market.
The U.S. dollar is somewhat oversold and overdue for a decent bounce. RSI is well below 30, and while MACD has room to fall further, the MACD histogram has actually stopped declining.
When it comes, a significant bounce in the dollar could be matched by a significant slide in gold. If not, it would be extremely bullish for the yellow metal, since it would indicate that gold's rise was not purely a function of the decline in the dollar but that other powerful fundamental factors were at work.
Gold bounced neatly off $773, the 38.2% Fibonacci retracement level, and attempted to re-enter its channel on Tuesday. It succeeded intraday but then fell to close at $791.40, just beneath the broken trendline. Bullish signs: RSI has risen back above 50%, and the MACD histogram has stopped declining.
If, however, the triple resistance offered by the trendline, the $800 round number and the Fibonacci level just above it should prove insuperable for the moment, gold could retreat to its 50-day MA (now around $767) or the Fibonacci 50% retracement level at $750.
Silver, like gold, bounced off suppport (at $14) but failed to stay in its channel after re-entering it, closing on Tuesday at $14.50, right on its trendline. It's bullish that RSI has risen back above 50% and that the MACD histogram has stopped declining.
If silver fails to clear the resistance offered by the broken trendline, it could fall back to its 50-day MA around $14, or even further to its 200-day MA, around Fibonacci support at $13.31.
GDX is looking strong, closing on Tuesday at $47.93, its high of the day, after bouncing off Fibonacci support at $46 and its 50-day MA at $46.62. RSI is back above 50%, and the MACD histogram has started to rise.
As the gold-mining ETF often leads gold slightly, a continued rise by GDX to breach the next Fibonacci resistance, around $49, would be bullish for the yellow metal.
Gold's recovery on Tuesday coincided with another decline in the U.S. dollar. RSI has fallen back beneath 30%, and MACD is threatening to make a bearish crossover.
The U.S. dollar index continues to show remarkable weakness, having managed so far only a brief rally of barely a week and barely a point.
It's Economics 101. Increasing demand and decreasing supply are what have been driving gold in the latest phase of its bull market, and they'll continue to push its price higher in the foreseeable future.
On the demand side, the World Gold Council's latest Gold Demand Trends report shows that investment demand for gold doubled in the third quarter as compared with the same period last year. Mineweb reports:
The driving force in the growth in demand in the third quarter was investor interest, largely on a safe haven basis, in the face of the growing concerns over the problems in the sub prime markets and their potential ramifications on the financial sector.
Those problems aren't likely to go away any time soon, which should keep safe-haven demand strong.
On the supply side, London's Daily Telegraph quotes Gregory Wilkins, chief executive officer of Barrick Gold, the world's largest gold miner, as saying:
There's not much gold out there. Global mine supply is going to decrease at a much faster rate than people generally believe. Many of the new mines that people are anticipating will never come into production. . . . It's hard to say where the price of gold is going because we're in uncharted waters. I would say it could easily move to $900, $1,000, or beyond. It could happen very quickly.
Wilkins was speaking at an invitation-only gold-mining conference in London last week. Just before the conference began, its organizer, RBC Capital Markets, predicted in its latest gold outlook that the price of gold will reach US$900 early next year. In the interim, RBC's analysts expect a brief correction, partly due to seasonal factors, that will take gold down to the $725-$750 range.
And if $900 to $1,000 is too conservative for you, Redburn Partners, in a 104-page report entitled Gold War, projects a long-term target of $1,500, with a possible spike to $5,000.
Gold closed down nearly $26 on Thursday at its uptrend line. It would be bullish if gold bounced off it and RSI bounced off its 50% level, although MACD, having made a bearish crossover at a relatively high level, appears to have room to fall.
Fibonacci supports remain at $773 and $750, with the 50-day MA currently between them at a little over $760.
Silver, too, found support on Thursday at its adjusted trendline, and RSI is just above its 50% mark. A bounce here would be bullish, but as with gold, MACD has made a bearish crossover and has room to fall.
Solid suppport lies at the Fibonacci retracement level of $14, with the 50-day MA just below. Next Fibonacci support is just above $13.30, currently coinciding with the 200-day MA.
GDX closed Thursday just above support provided by its 50-day MA and the 50% Fibonacci retracement level at $46. Again, a bounce here would be bullish, but although MACD has declined significantly since its bearish crossover, it has some way to fall before reaching zero.
Next Fibonacci support is around $42.86.
Unfortunately for gold, the U.S. dollar doesn't appear to be done with its bounce. MACD has just made a bullish crossover, and the U.S. dollar index has yet to reach its first projected Fibonacci resistance level at about 76.6.
Things are unfolding much as expected. Gold has fallen sharply back into its channel, closing at $799 on Tuesday -- slightly under the 23.6% Fibonacci retracement level -- having plunged $49 from its intraday peak last Thursday. RSI has fallen from above 80% to below 60%, and MACD has made a bearish crossover.
Gold will likely test the lower rail of the channel and quite possibly fall below it to support at the 38.2% Fibonacci level near $773. Stronger support lies slightly below, at the 50-day MA, near $760.
Silver looks ready to test the lower rail of its own channel near strong support at $14, with the rising 50-day MA just beneath. RSI has fallen sharply through the 70% level, and MACD is about to make a bearish crossover.
GDX closed at $47.58 on Tuesday, more than $6 off its intraday peak of $53.84 last Wednesday. RSI has fallen below 50%, and MACD has made a bearish crossover. GDX may test the strong support at $46, which also happens to be where the 50-day MA currently sits.
The U.S. dollar is finally bouncing, with RSI crossing above 30% and MACD threatening to make a bullish crossover. Initial resistance is at the Fibonacci level around 76.6. Stronger resistance may be expected at the next Fib level around 77.7, near the 50-day MA.
The tweezer top at $848 has prompted a welcome and expected pullback in the gold price. Several days to weeks of consolidation would allow a base to be formed for the next leg up in this bull run. RSI is falling from strongly overbought levels above 80%. If gold falls below the upper rail of its recent channel, support would be expected in the $800 area, close to the 23.6% Fibonacci retracement level.
Meanwhile, silver is looking resilient, making a long downtail on Friday for the second day in a row and again closing practically on the projected Fibonacci level. A pullback to the next Fib level down, around $14.70, would not be surprising and might serve as a buying opportunity. Below that, strong support may be expected at $14.
GDX continues its pullback, with RSI falling after the failure of its latest attempt to reach 70%, and MACD threatening to make a bearish crossover. Initial support is around $49, and stronger support is at $46.
On the weekly chart, a bearish candlestick resembling a shooting star can be seen, and RSI is in the process of being turned back from the 70% level.
The U.S. dollar index made a long-tailed candlestick resembling a bullish hammer on Friday. $USD closed just above the projected Fibonacci suppport level, and a bounce may be imminent to coincide with the pullback in gold.
In the longer term, of course, gold remains in a powerful bull market. Mark Hulbert notes the absence of irrational exuberance among the gold newsletters he follows, which to contrarians is a sign that the bull has legs.
Adam Hamilton calculates that the relative HUI, which is obtained by dividing the AMEX index of unhedged gold stocks by its 200-day moving average, stood at 1.298 last week. Hamilton says the time to start worrying about an intermediate-term top is when rHUI approaches 1.5, which is still some way off.
Even further off is the top of this bull market in gold. What will the price of gold be at that point? In a remarkable and compelling analysis, Christopher K. Potter tackles this question head-on from several different points of view and concludes that gold will surpass $2,500 (in devalued U.S. dollars) before this is all over.
As for silver, Ted Butler suggests in an interview with Jim Cook that because it is an industrial metal in chronic short supply, it will spectacularly outperform gold and ultimately reach a price in the hundreds of dollars.
Gold's bull run is stalling for now at the all-time nominal high of $850 recorded in January 1980. On Thursday the yellow metal failed to surpass Wednesday's intraday high of $848. It would not be surprising to see it overshoot $850 by a bit before correcting, but a period of consolidation is likely here after the recent steep rise. The long uptails on Wednesday's and Thursday's candlesticks support this scenario. Gold is likely to pull back to touch the upper trendline, if not break it, before proceeding any higher.
On Wednesday silver shot up to touch $16.27 before closing down at $15.33. Then on Thursday it fell as low as $14.86 before closing up at $15.52, practically at a Fibonacci level. The long tails on the candlesticks for both days visually represent the indecision in the market. It is likely that silver will trade in a range for a while as it digests its recent gains.
Speaking of indecision, the long-legged-doji candlestick formed by GDX on Thursday depicts a fierce fight between the bulls and the bears, with the price of the gold-mining ETF closing practically where it began the day, in the middle of Tuesday's opening gap. GDX may trade in a range here and could retrace to the Fibonacci level near $49. If support there fails, GDX could fall back to stronger support at $46.
On Thursday, the U.S. dollar index did not fall as far as Wednesday's intraday low of 75.08 but found support near the Fibonacci level of about 75.32. The dollar has fallen steeply for a month, with only the briefest of interruptions, and could pause for a breather here.
Exactly two months since gold broke out of its 15-month-long triangle on Sept. 4, the day this blog was launched, the yellow metal remains in a powerful bull leg, even if it's beginning to look a bit overextended.
Price is nearly 20% above the 50-week moving average, which has provided support since the beginning of this bull market in 2001. RSI, above 78%, is at levels at which corrections or consolidations have begun in the past, as is the MACD histogram. Both indicators continue to rise, however, so the long-term trend remains bullish.
Any significant dips would therefore present buying opportunities.
On the daily chart, gold is near the top of the channel and could pause here for a consolidation. A return to the bottom of the channel would be a good buying point. If, however, price breaks out through the top of the channel, that could represent the start of a parabolic rise that might not be sustainable for long.
Silver has begun to show signs of life since bouncing off support on Thursday.
GDX, too, is looking lively, recovering from its drop Thursday to reach an all-time-high close of $50.71 on Friday.
The gold-mining ETF has shown significant relative strength against the S&P 500 index since the middle of October, indicating that money has begun to flow into precious-metals stocks as other sectors experience weakness.
Alf Field suggests that the point of recognition, when the public realized gold is in a bull market, was reached last weekend. He says:
The Point of Recognition generally occurs about midway through a major move and is a useful guide as to the remaining length of the move underway.
Meanwhile, the U.S. dollar index resumed its decline after a one-day pause, closing at an all-time low of 76.26 on Friday. RSI is indicating that the dollar is oversold, but that doesn't mean it can't become even more oversold in the short term. $USD could still bounce at any time before continuing its secular decline — which could take the dollar to much lower levels, now that it has broken long-term support around 80.
Our strategy during the remainder of this bull market will be to hold a core of physical gold and silver plus the stocks of selected miners and explorers with proven resources. A second pool of more speculative stocks will be traded from time to time, along with exchange-traded options.
The U.S. dollar index bounced slightly on Thursday after seven straight down days. After briefly dipping below the 30% mark, RSI has popped up above it, suggesting the dollar will rise further. First resistance may be at the Oct. 22 low of 77.09, and stronger resistance lies above at the Oct. 1 low of 77.66.
Gold touched $802.50 on Thursday before dipping to $786.60 intraday but recovered to close at $793.70, down $1.60 or just 0.2%. No obvious weakness is being shown by RSI and MACD, but some consolidation here would not be out of place.
As expected, the $14 area provided support to silver, which touched $13.98 intraday on Thursday but bounced from there to close at $14.32. RSI has been repelled twice at 70%, and a trading range may be forming here. A promising sign for silver is that its 50-day MA is just about to cross over its 200-day MA, confirming the bullish trend.
GDX plunged 3.52% Thursday, even further than the 2.64% decline recorded by the S&P 500 index. RSI and MACD continue to make bearish divergences from the price of the gold-mining ETF, indicating that a significant decline may be in store. Good support is expected at around $46.
The U.S. dollar index has risen by more than a point from last Friday's low of 74.48, closing on Thursday at 75.63. RSI has crossed convincingly above 30, and MACD has also made a bullish crossover. Both indicators are showing positive divergence to the price, so the dollar could continue to rise.
Conversely, $GOLD (Stockcharts switched to the February 2008 contract this week) is showing weakness and has broken down again from its channel, closing on Thursday just above the Fibonacci 23.6% retracement level. RSI is falling toward 50, and MACD has turned back down.
Silver, too, is weak and below its broken trendline. RSI is breaking below 50, and MACD is falling.
GDX, though, appears to be trying to resist gravity. It closed near its 50-day MA and has traded in a range between about $46 and $49 for 13 sessions so far. RSI has been hovering around 50, and the MACD histogram is gradually rising.
