Sunday, March 20, 2016

GOLD Commitments of Traders COT and Weekly Candlestick Charts Gold Topping Out

Everyone is on the gold band wagon celebrating the parabolic move in the yellow metal this year. Pundits parade across computer and television screens daily proclaiming that gold will continue higher for months and years to come and a new bull market has begun. Not so fast. These are the same talking heads that said gold will collapse and it was a worthless investment at the end of last year. The consensus is typically wrong.

The green circles show the significant bottoms in gold price and the red circles show the tops. What do you think will happen?

Those chasing gold over the last couple weeks will likely regret it. The time to buy gold was when Keystone pointed out the long basing pattern in November-December and positive divergence (green lines) and oversold conditions. Price bounced to begin the year as forecasted. It is interesting to see gold take off like it did since the magnitude of the move was not expected. Especially with ECB President Draghi trying to weaken the euro which will strengthen the US dollar and send gold lower. After Fed Chair Yellen's FOMC meeting last week, however, the dollar drops, euro pops, and gold remains buoyant on the weaker dollar. Draghi is moaning as he wakes up this morning laying on the kitchen's cold linoleum floor; his back is aching from laying on an empty whisky bottle for the last couple hours.

It is likely that Draghi will manipulate the euro lower which will create stability and slight upward bias in the dollar which would squelch the gold run and this outcome would jive with the charts above. Gold price has violated the upper pink standard deviation band so a move back to the middle band, the 20-week MA at 1135, is on the table at a minimum. The lower band at 986 also on the table. The middle and lower bands are rising so each day these downside target number increase.

The indicators are negatively diverged (red lines) sans the MACD line which is typically the last to turn. Thus, a spank down would be expected right away say this week, however, on this weekly basis, gold price should come back up one more time to satisfy the MACD. At that time, say a week or two away, check the MACD and it will likely be neggie d which marks the top in gold on the weekly basis. So going long gold now is like picking nickels up in front of a steam roller; sure you may make a few percent on the upside but the risk is far greater to the downside; it is not worth the risk on the long side. Neither the short side. Wait for price to return higher and the MACD line to go neggie d and then a gold short would be prudent.

As a guess, gold will likely retreat this week to 1220-1240, then to close out the month of March the following week price may come back up to 1260-1280 which will be short-lived, the MACD line will negatively diverge, and gold will drop down hard to 1130-1150 for starters. So if long gold it is likely prudent to scale out or exit completely. If you have the stomach to endure the quick pain that may occur this week, price will likely recover as described and that would be the last chance to jump ship. If you made a profit to date, it is likely best to ditch gold tomorrow and move on.

Interestingly, the gold monthly chart is in a sideways pattern with a slight upward bias. So after the weekly chart wreaks havoc and gold tops say anytime over the next week or two and falls to an intermediate term low say in mid to late April or May, gold will likely stagger sideways the remainder of the year with a slight upward bias say through the 1140-1280 range for the months ahead and then perhaps a buoyant surprise in the back half of the year with gold moving through 1175-1380 to end the year. Of course this can be refined as the weeks proceed. If gold drops under 1140, then prices will likely remain more subdued as the months play out. 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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