Gold Market Update 10/17/11
by Clive Maund: Silver
News has come in that "Germany and France are spearheading a multi-trillion
dollar “shock and awe” programme expected to be agreed next weekend
and presented the following week at the G20 summit in Cannes. The
international community may provide further support after the G20
agreed that the IMF should “consider new ways to provide on a case
by case basis short-term liquidity to countries facing systemic
shocks”. The IMF will report back on what measures it would offer
at the summit in Cannes." This should be music to the ears of gold
and silver bulls and is of course exactly the sort of "solution"
we have been expecting and since we have aligned ourselves with
the Commercials, exactly the sort of solution they have evidently
been expecting. The solution involves a massive blast of QE which
will be highly inflationary and thus will drive gold and silver
and other commodities higher. European leaders appear to have at
last learnt this universal solution to all problems large and small
from the US, and although it doesn't really solve the problems at
all and in fact makes them ultimately worse, at least "it kicks
the can down the road" and keeps leaders in power for a while longer.
Over the past week gold has advanced slowly towards a clear resistance
level in the $1680-$1710 zone. This is a very important resistance
zone as it marks the lower boundary of the earlier top area, so
it will be a big deal if gold can climb back above this level. You
will recall that in last weekend's update we had classed the current
holding pattern as a potential bear Pennant, but now, even though
gold may back off short-term, the action of recent weeks is viewed
as a basing pattern that should lead to renewed advance before much
longer. Because of the strength of this resistance level and the
fact that gold has got back up to it quite quickly we should not
be surprised to see gold turn tail and drop short-term, perhaps
back to the support in the $1600 area, which is also suggested by
the weak volume on the rally this past week which indicates that
gold is not yet ready to take out the resistance. We should not
be upset by this and instead use it as an opportunity to build positions
further, as it is now thought unlikely that gold will drop below
$1600 after which it is likely to turn higher and drive through
the aforementioned resistance. It is now thought highly unlikely
that gold will drop to the "aggressive accumulation zone" shown
on our chart. In addition to the powerfully bullish fundamental
factors set out above, the gold COT charts remain strongly bullish,
and are little changed from last week.
The latest copper COT charts also provide circumstantial evidence
of an impending big rally in commodities, with the habitually wrong
Large and Small Specs going short copper while the Commercials are
now quite heavily long. The Large Specs got slaughtered after their
July euphoria when copper challenged its highs.
The dollar has reacted back sharply over the past 2 weeks, probably
due to the prospect of resolution of the acute crisis in Europe.
It is now oversold short-term and on support near its rising 50-day
moving average, and is therefore entitled to a bounce. However,
if we see some real progress in Europe and easing of the crisis
there in coming weeks, then all of the gains made during the recent
rally could be given back – and the rest, as the dollar has only
benefitted in the recent past by default – due to its status as
“King of Hell”.
In conclusion gold looks set to break down short-term and drop
as the dollar stages a recovery rally, but the expected drop should
be nowhere near as severe as the September plunge, and it will provide
a final opportunity to load up with gold and Precious Metal investments
generally ahead of the major rally that the COTs are presaging.
with permission from CliveMaund.com.
© 2011 Clive