Are Precious Metals Likely To Get Less Precious?

• The Long-term indicators
• Gold in Euro and Yen looking sick
• Dollar based Gold completes head and shoulders top gold shares not quite there yet
• Silver showing signs of tiredness
• Stocks breaking out against Gold
• The silver lining for Gold

Several articles  I have written in the last few weeks have at least partially featured gold. I really don’t have much affinity for the yellow metal one way or the other, but its technical position is at a pretty crucial point right now. Most of the areas I will be focusing on are bearish, but it wouldn’t take much to reverse trend to the upside and several indicators are short-term oversold. While the balance of evidence is negative, I’ll try and point out what to look out for from both a bullish and bearish aspect.

The Long-term indicators

Chart 1, probably sets out the situation better than any other. The shaded areas flag periods when the 6-month MA for the gold price has been below its 18-month counterpart, as reflected in the negative PPO in the lower window. The two red and one green arrows point up three false signals that have developed since the mid-1970’s. They would not have caused much harm had they had been acted on, and this would certainly been a small price to pay compared to all the profitable signals. Right now the PPO is marginally negative as the 6-month MA is at $1250 with its 18-month counterpart at $1256. Remember though, that this is not a decisive signal and second, Chart 1 is based on monthly closes we only have data for the up to July 7 . Both averages are more or less flat, underscoring the very finely balanced technical position.

Chart 1

Chart 2 offers a similar picture between the long-term KST and its 9-month MA, where you can see a bearish, but nevertheless, finely balanced situation.

Chart 2

Gold in Euro and Yen looking sick

Chart 3, features the gold price expressed in Euro, where it is evident that a 1 ½-year head and shoulders top has been completed. Right now, the price is just above its 2014-17 up trendline. It seems destined to cross below it, because all three KSTs are already in a bearish mode. Moreover, the downside objective, called for by the head and shoulders looks for a price well below the trendline violation point.

Chart 3

The Yen has been far weaker than the Euro. Even so, the Yen denominated gold price has still managed to eke out a downside break, as indicated in Chart 4. Since the short- and intermediate KSTs are, to some extent bearish,  further price erosion looks likely hear as well.

Chart 4

Dollar based Gold completes head and shoulders top, gold shares not quite there yet

Chart 5  shows that US Dollar based Gold has also completed a small head and shoulders top. The momentum picture is not quite so negative as Euro based Gold, because the long-term KST has gone completely flat.

Chart 5

Chart 6 tells us that the VanEck Vectors Gold Mines ETF (GDX), and the Gold price move very closely together. At this juncture though, the GDX, is right at its breakdown trendline, as is the ratio between the two. As you can see from recent price action, a rising relative line for the GDX is usually bullish for the price of the yellow metal, so a break to the downside would be very negative. On the other hand, a break above all three green down trendlines could change this bearish, but still finely balanced technical situation, to a positive one.

Chart 6

Silver showing signs of tiredness

Silver and Gold usually move fairly closely together, so it is certainly not a good sign that Silver is currently leading Gold lower. In this respect, Chart 7 shows that the iShares Silver Trust, the SLV, has just broken down from a 1 ½-year head and shoulders top and moved further away from its 65-week EMA. Equally as important is the fact that the ratio between Silver and Gold has also broken to the downside and this action is being supported by a declining long-term KST.

Chart 7

Further negative evidence comes from the ratio between silver shares and gold shares (SIL/GDX). This relationship is shown in Chart 8, where last week’s breakdown is fairly evident.

Chart 8

Stocks breaking out against gold

Earlier in the week in my July Roundup Webinar, I pointed out that stocks were positioned to break out above a 10-year resistance trendline against Gold. Chart 8, which shows the last few years of this line, indicates that a breakout has indeed taken place and is being supported by the short-term KST. This holds several implications for both stocks and gold, all of which are discussed in the webinar.

Chart 8

The silver lining for Gold

The one silver lining for Gold, and it’s not a very big one, lies in the fact that the very short-term indicators are deeply oversold. Chart 9 compares the price of the ETF with its 9-day RSI. However, the chart also tells us, that if last week’s breakdowns are for real and this truly is a bear market, the overstretched condition will not count for a lot. Last November, for instance the RSI was in a similar position to where it is today, yet this was not sufficient to prevent a serious extension to the decline that took place at the time. Even so, in this politically unstable world it’s not impossible for some unexpected or unforeseen event to trigger a quick gold rally, right at the point when things look bleakest for the yellow metal. I wouldn’t bet on it, but it’s certainly something to bear in mind if things do start to turn around.

Chart 9

Good luck and good charting,
Martin J. Pring

The views expressed in this article are those of the author and do not necessarily reflect the position or opinion of Pring Turner Capital Group of Walnut Creek or its affiliates.