Sunday, July 19, 2015

GOLD COT (Commitments of Traders) and Daily Charts Lower Band Violation Price Extended to Downside

The gold COT report chart shows the tops in gold price with the green circles and the bottoms in gold with the red circles. The blue and red bars are squeezing in towards the center in sync with prior bottoms in the gold price. The question is if the next prints show a move outward in the bars, or remain flat to moving more towards the center line (blue and red dots). COT information lags the price charts.

On the gold daily chart, price has collapsed. to multi-month record lows losing 1150 last week and plummeting to an 1129 handle before closing the week at 1132. The brown dots show price over extended to the downside under the 20-day MA under the 50-day MA under the 200-day MA which will require a mean reversion higher. The lower band violation occurs so price will want to recover to the middle band, now at 1165 and dropping, at a minimum going forward.

The green lines show positive divergence remaining in place on the multi-month basis wanting to see higher prices ahead, however, in the very short term (VST), the red lines show weak and bleak RSI, MACD line and stochastics. So price should bounce but will come back down again in the days ahead for another low. It may take a few days to rectify the VST weakness but once that is finished, and if the longer term possie d remains in play, which it likely will, price should recover similar to the November and March bottoms.

The gold weekly chart also violates its lower band and is setting up with positive divergence but in the VST, on a weekly basis, the RSI and MACD line are weak. This  hints that lower lows may be in store for gold over the next say one to three weeks. Mixing it all together, gold may have a bumpy path ahead with a bounce on tap for a couple-few days, then lower again, then another bounce but then lower again say a couple weeks out. Gold should place a bottom but it may not occur until next week or early August. Thus, it is too tricky to jump in long right now, that would not be prudent, and it is also not desirable to short. It is likely best to wait a couple weeks where a firm bottom may appear.

The weakness in gold, as well as copper, is concerning if long the market. Stocks remain elevated and printing record highs due to the global central banker intervention. The weakness in commodities indicates global economic weakness. Deflation, the "D" word that everyone is afraid to mention, remains on the table, and in a deflationary environment gold can move lower along with everything else. The waiting game continues for gold although an edge can be given to the gold bugs. A substantive bottom should occur for gold over the next month.

The dollar index (USD) has jumped from 95.5 to 98 in the lat five days sending gold down the rabbit hole. As would be expected, the dollar chart is the mirror image of the gold chart and the same technical analysis is in play only in reverse. As the USD tops out in the near term over the coming days and weeks and pulls back to take a rest gold will recover and move higher. This information is for educational and entertainment purposes only. Do not invest based on anything you read or view here. Consult your financial advisor before making any investment decision.

Note: The COT Chart is courtesy of COT Price Charts and is annotated by Keystone.

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