iGold

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As President Trump prepares to nominate a new chair for the Federal Reserve this week, gold prices remain in a range bound consolidation. Not only has this grinding pattern been ongoing for the last several weeks, but when we examine the price chart for the last five years, we see that gold has essentially been flat as a net sum dating back to mid-2013. And indeed, to the mainstream investor who is primarily involved in a stock market now at all-time highs, gold appears of little interest at the present moment:

Yet we believe this is exactly the time when contrarian-minded individuals should be starting to pay attention to the precious metals. For underneath the surface, despite flat prices since 2013, gold is showing hints of strength to come.

In fact, there is a major leading indicator that is now flashing a buy signal. This signal has only registered once before in the past 17 years. And in the markets, the key is to act before something is widely recognized by the mainstream. Let us turn to this leading signal.

For the following discussion, we will refer to the chart below and the annotations (A) through (D):

Gold Vs. Commodities Signal

The leading signal follows a series of three points, and the only other time that this signal has ever registered occurred at the major low for gold prices at $680 per ounce in October 2008, during the depths of the credit crisis (red arrow).

First, point (A), shown below the main chart: note how in October 2008, gold broke out versus the CRB commodity index at the major low. What this signal demonstrates is that even as gold prices were falling in the crash, they were falling at a much lesser rate than the rest of the commodity sector. Internally, this shows relative strength in favor of gold. In layman’s terms, it means that some investors were accumulating gold even as the rest of the commodities were being sold, and this signal hints that gold will lead once the rest of the commodity sector bottoms.

Next, point (B): in February 2009, gold broke through its declining (magenta color) trendline at $900 per ounce. This trend of lower prices began at the 2008 peak at $1,033 per ounce. Gold then rallied back to $1,000 within three weeks.

Next, at point (C): gold fell in April 2009 back down to $860. This decline resulted in a retest of the now-broken trendline, so labeled on the chart. A retest occurs as investors who bought during the initial price break are tested to see if they will show up again near the same level. Note that a retest of a broken trendlines can indeed occur at a lower price ($860) than the initial breakout point ($900). The most important facet is to recognize that the trend of lower peaks has broken.

Point (D): a multi-year rally to new highs commenced.

In sum, the leading signals (A) – (C) of gold rising versus the broad commodity index at a major price low, the downtrend break, and the trendline retest were all sequential indicators of a significant advance in prices setting up for the future. But those who waited for gold to advance well north of $1,000 per ounce had few opportunities for pullbacks over the next two years as prices more than tripled from 2008 crash lows.

Same Signals Registering Today

The same set of signals are now registering for gold again, only on a greater timescale and with potentially greater ramifications.

Note how (A) gold again broke out versus the CRB commodity index at a major price low ($1,045), in December 2015. This indicated gold accumulation was ongoing, even as most commodities were being discarded. This was the only other time that this signal has registered outside of the crash of 2008.

Next, at (B) gold broke its long-term 2011 – 2017 downtrend, at $1,265 in August 2017. Again, we see the pattern of lower peaks since 2011 being broken, the same signal which occurred in February 2009.

Presently, gold is (C) retesting that long-term downtrend break. Once again, in the same scenario as the initial example, this retest is occurring at a slightly lower price than the original downtrend break, as gold has recently fallen to $1,262 within the last two weeks. This is entirely acceptable within the technical model. The key is that the broken trendline should not fail, even if the retest occurs at a lower level.

After this retest occurs, our model indicates that a major rally will unfold. This will represent point (D) on the chart above. Our initial target for gold remains $1,485 – $1,535, but this is a first target only. It is quite possible that gold will advance well beyond that level in the years to come to perhaps challenge or exceed 2011 highs, but for the time present we are focused on initial targets only.

Imagine having sold gold at $860 in April 2009 out of frustration, on the retest of the broken trendline. This would have marked the last time gold ever traded below $900 before the major 2009 – 2011 advance carried prices higher by over $1,000 per ounce.

That same technical retest is occurring now in the gold market – it is just happening on a much longer timescale and at a higher initial price point.

We continue to believe that the present period will represent the final opportunity for those investors who are only focused on the nearly-flat prices since 2013 (as indicated on the first chart) to get washed out of this market in frustration.

Takeaway On Gold’s Leading Indicators

Subtle strength is building underneath the gold market. A leading signal only seen one other time – the 2008 low at $680 per ounce – has again registered. The downtrend break has occurred. Gold is now retesting that downward trend.

This retest process could take several more months to play out, but the leading signals hinting for a major rally setting up in 2018 and beyond should not be overlooked.

Link to original article: http://news.gold-eagle.com/article/gold-price-forecast-%E2%80%93-first-breakout-signal-2008/816

It seems that hardly a week goes by that we do not hear that the US stock market has hit another new all-time high. And indeed, the US capital markets have been amongst the best performers in the world since the crash of 2008-2009 lows.

Many have wondered when the US and world stock markets might reach a peak for the implication this trend reversal would have on the gold market. While not always the case, in general a falling stock market would cause certain investors to seek safety, and gold would be a primary beneficiary.

As a backdrop, we already know that dividend yields (i.e.  shareholders’ income) are at hundred-year low levels. Dividend yields move inversely to price, so by this measure it appears that stock prices are largely overvalued.

For example, assuming companies could maintain dividend payments throughout a crash (however unlikely), it would take over a 60% crash in stock market prices to bring yields on the S&P 500 back to the 4.5% mean which held from the late 1800’s through 1990.

Further, yields are still below where they were during the peak of the 1929 bubble (labeled Black Tuesday)!

Yet we can also see that since 1995, investors have seemingly forgotten about yield altogether, as dividends have remained at 100+ year low levels for this entire period. Thus, we cannot use dividend yields alone as a predictor for the next stock market turndown, no matter how much lower than historic norms these payouts are.

We instead must turn to other forms of analysis.

Stock Market Tops From History – Crash Of 1929

There are specific technical characteristics of past market peaks that we can observe from history and apply to today. Let us look at a few examples.

First let us examine the period surrounding the great crash of 1929. Below is the chart of the Dow Jones Industrial Average from 1900 through 1943:

1. From the early 1900’s through 1925, the US stock market was in a slow and steady bull market, defined by the orderly linear rising channel shown above (magenta lines). This coincided with a general increase in prosperity due to advances in technology, medicine, and standard of living, amidst low inflation on a gold standard. Orderly rising trends tend to define sustainable and healthy markets.
2. In late 1925, this 25+ year rising channel was broken higher as speculative fervor began to take hold in the market (red circle). The orderly rising market had become disorderly. This was 12 years after the founding of the Federal Reserve, and this speculative period was largely a result of built-up money-printing from the Fed searching for an outlet.
3. The disorderly advance preceded a parabolic frenzy, i.e. a “bubble” in the stock market.
4. The bubble was followed by the Crash of 1929 as valuations had become unsustainable. The Dow Index lost over 90% during the next three years.
5. After the crash and the washing out of the speculative excess, the Dow returned to an orderly rising trend for the next several decades.

Here we can gain key insight into the phases a market progresses through as it approaches an unsustainable bubble and the technical characteristics that define each stage.

1. An orderly rising market.
2. The market advance becomes disorderly.
3. A parabolic rise.
4. A crash.
5. Return to an orderly market.

NASDAQ Bubble

We can see the same set technical characteristics when we study the NASDAQ / dot-com bubble of the 1990’s here in the United States:

Again, note the five stages that the market progressed through en route from an healthy rising market à to a disorderly advance à to a parabolic bubble à followed by a crash à followed by a return to some sense of order again.

These are key characteristics that we should look for in stock markets which are approaching speculative bubble peaks.

Not All Markets End In Parabolic Bubbles

We must remember that not all markets must feature parabolic blow-offs in their final stages. The other form that long-term tops may take is a rolling-over and breaking of the orderly rising channel to the downside, prior to a sustained decline.

An example of this setup was the bull market leading up to the Crash of 2008, shown below:

Here we see the same orderly linear rising channel to begin the bull market (blue channel).

However, in contrast to the two examples above, in 2007 we witnessed no disorderly rise leading to any sort of parabolic curve higher.

Instead, the S&P 500 simply began to roll over, eventually breaking down through the lower boundary of the rising channel in late 2007.

This was followed by a failed retest of the channel in mid-2008, and then the historic crash in the fall of that year.

Common Theme

The common theme in identifying a long-term top in stock market cycles from a technical basis is an orderly rising market that becomes disorderly.

The direction that the multi-year channel breaks – either higher or lower – generally tells us whether that market is going to:

1. Accelerate higher into a parabolic bubble stage and then crash, or
2. Simply run out of buyers, roll over, and break down.

Fast Forward To Today

Again, within the backdrop that stock prices as measured by dividend yields are generally overvalued, let us examine the chart since the Crash of 2008-2009 lows:

Again, what we see is an orderly linear rising channel. Yes, this channel is quite steep – but we see no signs yet of the market becoming disorderly either higher or lower.

Note that there were two false breakdown signals (2011 and 2016) during which it appeared the market was set to roll over, similar to 2007. However, after the brief panic, buyers stepped back in, and the rising channel was resumed.

The point is that we have no evidence from a technical basis for an impending stock market top at present.

Could a top form within the next several years? Absolutely – yes.

Do we desire to chase the stock market higher at this point, when dividend yields are at generationally-low levels? Absolutely – not.

Yet again, from identifying the footprints of past market cycles, we can say that one of two things must happen to signal an impending decline in the stock market:

1. The orderly rising market must become disorderly to the upside. This would precede a period of several years of more of rapidly rising prices, which would lead to a speculative mania far exceeding what has already been witnessed.
2. The orderly market will break its rising channel lower and begin accelerating downward due to lack of buyers.

Takeaway On The US Stock Market

We may have a fundamental belief regarding the over-valuation of the US stock market – however, the market shows no imminent signs of forming a top, and markets can stay irrational for many years longer than fundamentals might warrant.

When topping signs do manifest they will be clear on the charts.

We remind readers that precious metals do not always move counter-cyclically to stock prices, i.e. in a highly inflationary environment, both can rise at the same time. For example, since the January 2016 lows, despite the broad stock market receiving all the media attention, the precious metals sector has significantly outpaced the S&P500.

Link to article on Gold-Eagle: http://news.gold-eagle.com/article/us-stock-market-%E2%80%93-signs-top/646

It is often said that in market analysis: “volume precedes price movement.”

Gold has just posted its highest quarterly volume of all time for futures trading history, for the quarter ended September 30. The closing data shows that for the period, over 17.5 million contracts traded hands. This eclipsed the previous record volume by a whopping 3.5 million contracts. What more, the new record surpasses the number of contracts that were traded during the quarter in which gold made its all-time price high of $1,923 per ounce, which came in Q3 of 2011.

Something is happening here in the gold market, for those who would pay attention to the hints now presenting themselves.

Let us examine the quarterly chart:

Gold Remains in Basing Pattern

What is interesting to note is that this volume surge is occurring as prices remain at or below 2013 levels. The volume spikes are happening now, during the final period of what is a 5-year basing process of overall flat prices, since 2013.

Bases are a technical term for generally sideways price action over a lengthy period of time. To the casual observer, it appears as if nothing noteworthy is happening in the market. Prices rise and fall, and then they rise and fall again, and the mainstream investor begins to lose interest.

Yet underneath the surface, the volume spikes occurring in 2017 tell us that something significant is happening: an acceleration in the transfer of gold from weak hands to strong hands.

Gold Technical Analysis

Turning to the daily price chart since the aforementioned 2011 peak in prices, the most important point for us to remain focused on is that gold has broken its long-term 2011 – 2017 downtrend (magenta) and is now retesting that breakout (green shading). This was a clear and strong resistance trend for gold over the past six years, and so a significant advance following a successful retest is to be expected.

Yet we must remain open to the range of scenarios that are possible within the technical model, and for that we must again bring up the longer-term 2011 – present gold chart:

The “must hold” level for gold is thus defined as $1,240, and falling each week. This is the price level where the broken downtrend would be today if it had held. If this level were to fail, the entire breakout would be invalidated, which would have extremely bearish implications for gold prices for several years into the future. We place the probability of this negative scenario as low, given the magnitude of the resistance that had to be overcome by sufficient buying pressure over the past year to break the downtrend. Those buyers should show up again as prices retreat to the breakout zone.

Our 18-month target remains a range between $1,485 – $1,535, as discussed in this recent article (LINK: http://news.gold-eagle.com/article/gold-price-forecast-breakout-underway/727). To summarize the main expectations now over the near-term:

Primary Gold Scenarios – referenced on chart above

Scenario (A) – Higher Retest – gold does not make a full retracement back to its broken long-term downtrend, and instead finds support near current prices of $1,270. Such would indicate buyers positioning aggressively for the anticipated breakout advance. We would thereby expect our primary target of $1,485 – $1,535 to be reached by Q1 2018.

Scenario (B) – Lower Retest – gold does make a full retracement back to its broken long-term downtrend, falling to $1,240 (or slightly lower if it occurs after a further delay). Such would indicate the weakest possible advance trajectory. The breakout targets would remain valid, yet buyers would not be showing strong conviction. We would thereby expect our primary target of $1,485 – $1,535 to be reached by end-2018 / Q1-2019.

In sum, the level of the retracement now being observed will give us a strong showing for how aggressively buyers are stepping into the market on the retest, and thus how quickly the technical targets should be reached. The target remains the same in either scenario; it is the timing that will vary.

Takeaway on Gold Prices

Record volume is being observed in the gold market in 2017, even as prices have not moved significantly from where they were five years ago. This increase in volume is signifying increased interest in gold as a basing process is progressing.

Gold has already broken its long-term downtrend. The next confirmation of a sustained advance will come when 2016 highs are exceeded.

But investors should not be chasing price spikes higher after that occurs. Risk of a more significant pullback will increase once gold begins to approach the above targets.

Finally, as this basing process continues we believe that there is great risk of certain investors getting “washed out” of the precious metals market just prior to a major advance if they do not view this price action with a proper technical lens. We will continue to monitor the downtrend retest as it occurs, and look for volume to remain strong when 2016 highs are re-challenged.

Link to original post: http://news.gold-eagle.com/article/gold-prices-record-breaking-volume/780