OK, so we had a load of hype over gold in the last few months. What has it done? Net, gone nowhere since that peak last November. The bottom is “wedging up” that, in classical charting is supposed to mean that it will breakout to the topside. To me, it looks more like it is banging into $1400 and folks just balk at buying then.
At any rate, the range is narrowing lately to the point where even day trading on a fast chart has little room to work with. We’ve got ADX (the bottom black line) at about 15 which is a very weak to trendless reading. DMI is “Blue on top” and that is a ‘positive call’ but with very little upward strength.
Now look at Copper JJC and Nickel JJN. They have both “broken down”. They are “industrial metals” so that is saying not a lot of demand to “make stuff” right now. Even in the face of a falling dollar they are falling in price. That does not “speak well” for gold as the metals are all “inherently valuable” and in a poor economy folks demand for gold (in jewlery, electrical contacts in electronics, etc.) drops off too.
All in all, I’d use the movement in copper and nickel as an “early indicator” that looking forward, the economy is not so good right now on a global basis. That gold price is unlikely to hold, IMHO. At best it ought to be an “inverse dollar inflation hedge” but it brings with it all the risks of gold (high volatility for one, central bank manipulation for another). Notice, too, that GDX (the gold miners fund) did a little overshoot and is now settling back. They have a load of gold ‘in the ground’ so if folks really wanted long term gold, they ought to be rising. They are not.
MACD is “red on top” that says to be out of the trade; and while it is above zero (a positive sign) it is trending toward zero. The steam is leaving the gold price. Williams%R is also at the midline (as very weak position) and with the last positive lobe very narrow. When it does go up, it fades fast. Right now to be in gold is to take all the risk for very little reward.
And what about that silver bubble? Well, it’s still bubbling along…
It looks exactly like a ‘classical bubble’ to me. Runs way higher than any reasonble person would expect. Doesn’t move with it’s peers (other metals). Driven by a “story”. (In this case that silver is being “remonitized”… except that it isn’t being made into money anywhere, folks are just buying it on speculation that it’s better in some way than currencies) and the notion that it will return to the 16:1 gold:silver ratio which would make it $87/ ounce. That ignores the facts of consumption of silver. Most of it used to go into things like photographic film (replaced by digital) and papers (replaced by organic inks and home printing) and when was the last time the average person had sliver “silverware”? No, the ‘industrial demand’ is down in many uses. The Chinese are shooting a load of it into the sky trying to make rain (as they would rather have food than silver…) over their drought areas, but other than that, it ought to be moving with copper and nickel if industrial demands were driving it.
(Silver is a byproduct of copper mining, so to the extent copper mining is down, silver supply drops and silver prices can move opposite that trend on supply issues. So it isn’t a direct tie to industrial demand.)
No, the “story” here is just one of a large herd of folks all ‘running into the silver trade’ and that is what makes a bubble.
With that said, the chart is saying “more room to run in the bubble”. It has moved through the prior top. ADX is a spectacular 35, so it’s a strong move. DMI is very “Blue on top” and MACD is high above zero and in that “merged sideways” form it gets in a prolonged steady state rise. Williams%R is also showing “be in” with the “down dips” very narrow and the “above lumps” very broad. So this puppy likely has some more room left to get all the
suckers investors sucked in.
Me? I’m going nowhere near it. I’ve seen silver drop 50% in one day when a bubble burst. It’s a fairly thin market, so can move a very long ways from not too much money wanting in, or out. Furthermore, my “favorite indicator” for gold is to watch for “Buy Gold Now!” ads on TV. When they show up, folks “in the know” are trying to exit their positions and not getting enough buyers. It’s modestly reliable (if sometimes a bit early). And what am I seeing now on TV? Ads to “buy SILVER!!!!” … If the guy selling it has to spend money on air time to move it out, and he is in the business of silver, what does that tell you?
At any rate, silver might well double from here, and could be traded on a day trade basis ( I’d only use a 10 day 15 minute chart…) you can likely make some money. For an “investment” I’d run from it right now. As a ‘trend trade’ it is very high risk (due to that downside volatility) but you may have a few more weeks to “game it”… That the latest price “bar” is a tiny little cross (i.e. not much difference between open, close, high, and low) is also a ‘worry’. You often see those at the top of a spike…
Much more important to me are those rollovers of copper and nickel. They say China isn’t buying, which means they aren’t making, which means folks are not buying stuff, which means “not good” trends… Copper is a fairly reliable indicator of economic activity and when things are growing, copper production grows with increasing demand. That’s not what we are seeing now…