Gold & Precious Metals
Gold and Silver are going to close down for the third consecutive day and the third consecutive week. As we pen this on Friday, Gold bounced from $1162/oz and could close near $1170/oz while Silver traded below $16/oz and may close at $16/oz right on the dot. Both metals are now dangerously close to their final weekly supports and therefore one step closer to an important technical breakdown.
The weekly candle chart for both metals is shown below. Today’s action has yet to be updated. Nevertheless, we can see the clear important weekly support for both metals. For Gold it’s roughly $1150 and for Silver it’s $15.50 to $15.70. The failure of the metals to rally out of their 7-month long bases bodes bearish for the weeks ahead. Furthermore, let’s not forget the relatively high net speculative positions seen in both markets. The COTs will be updated by the time you read this but odds are there are plenty of speculators left to drive the metals to a final breakdown.
Gold & Silver Weekly
The miners, which peaked before Gold in 2011 and have shown more strength (or less weakness) in recent months
figure to lead the sector out of the coming bottom. At the least, the miners are likely to remain above their lows as the metals break their own lows. In daily terms, Gold is about 2.5% from its low of $1140 while GDX and GDXJ are roughly 13% and 15% from their daily lows. The weekly chart below plots GDXJ and GDX and their weekly support (in blue).
GDXJ & GDX Weekly
Put yourself in position so you can take advantage of the coming breakdown, rather than be a victim of it. We booked profits in our hedges today and will look to reload if the metals rebound next week. We also advise tuning out the super bulls and super bears who are calling for price targets which have no fundamental or technical basis. Extreme targets are an emotional distraction and not actionable.
Mind you, we are huge gold bulls and expect a very sharp rebound to come after this final breakdown runs its course. If and when Gold reaches major support around $1000/oz, it will likely find itself extremely oversold with very negative sentiment. That combination along with strong technical support can produce a big rebound. The coming breakdown in the metals could create one last chance to buy quality junior miners at bargain prices.
Jordan Roy-Byrne, CMT
More and More Countries Join the War on Cash
The War on Cash is now going into hyper-drive.
In the last 24 months, Canada, Cyprus, New Zealand, the US, the UK, and now Germany have all implemented legislation that would allow them to first FREEZE and then SEIZE bank assets during the next crisis.
These moves will be sold as “for the public’s good,” when they happen. But the reality is that it’s all about stopping people from moving their capital into actual physical cash.
The whole template for this was set out in Cyprus in 2013. The quick timeline for what happened in Cyprus is as follows:
June 25, 2012: Cyprus formally requests a bailout from the EU.
November 24, 2012: Cyprus announces it has reached an agreement with the EU the bailout process once Cyprus banks are examined by EU officials (ballpark estimate of capital needed is €17.5 billion).
February 25, 2013: Democratic Rally candidate Nicos Anastasiades wins Cypriot election defeating his opponent, an anti-austerity Communist.
March 16 2013: Cyprus announces the terms of its bail-in: a 6.75% confiscation of accounts under €100,000 and 9.9% for accounts larger than €100,000… a bank holiday is announced.
March 17 2013: emergency session of Parliament to vote on bailout/bail-in is postponed.
March 18 2013: Bank holiday extended until March 21 2013.
March 19 2013: Cyprus parliament rejects bail-in bill.
March 20 2013: Bank holiday extended until March 26 2013.
March 24 2013: Cash limits of €100 in withdrawals begin for largest banks in Cyprus.
March 25 2013: Bail-in deal agreed upon. Those depositors with over €100,000 either lose 40% of their money (Bank of Cyprus) or lose 60% (Laiki).
The most important thing I want you to focus on is how lies and propaganda were spread for months leading up to the collapse. Then in the space of a single weekend, the whole mess came unhinged and accounts were frozen.
One weekend. The process was not gradual. It was sudden and it was total: once it began in earnest, the banks were closed and you couldn’t get your money out (more on this in a moment).
There were no warnings that this was coming because everyone at the top of the financial food chain are highly incentivized to keep quiet about this. Central Banks, Bank CEOs, politicians… all of these people are focused primarily on maintaining CONFIDENCE in the system, NOT on fixing the system’s problems. Indeed, they cannot even openly discuss the system’s problems because it would quickly reveal that they are a primary cause of them.
For that reason, you will never and I repeat NEVER see a Central banker, Bank CEO, or politician admit openly what is happening in the financial system. Even middle managers and lower level employees won’t talk about it because A) they don’t know the truth concerning their institutions or B) they could be fired for warning others.
Please take a few minutes to digest what I’m telling you here. You will not be warned of the risks to your wealth by anyone in a position of power in the political financial hierarchy (with the exception of folks like Ron Paul who are usually marginalized by the media).
With that in mind, now is a good time to prepare for systemic risk. I cannot forecast precisely when things will get as ugly as they did in Cyprus for the financial system as a whole (no one can).
However, the clear signals are clear that the Feds are preparing for something big. The Treasury Department has ordered survival kits for the Big Banks’ employees… and the NY Fed is expanding its satellite office in Chicago in case something major happens that forces the market to collapse.
Gold has been frustrating for bulls and bears since its crash in Q2 2013. In the two years since it has traded in a wide range, frustrating traders and investors. The net result has been nothing but the passing of time. Until Gold breaks above $1300 or breaks below $1150, we will remain in waiting mode. Personally, I believe Gold is far more likely to break lower in the weeks and months ahead. In any case, we are still waiting.
Below is the updated Gold bears analog chart. The chart excludes the extreme bear in terms of time (1987-1993 bear) and the extreme bear in price (1980-1982 crash). The other three bears in the chart provide good context for the current bear which has closesly followed the 1996-1999 bear. Considering only this chart, the $1050 area is a reasonable target.
Gold Bears
The next chart shows a weekly bar plot for Gold and its net speculative position (as a percentage of open interest) at the bottom. Gold has strong weekly support at $1150 but if that breaks then we can anticipate a move down to stronger support at $1000 to $1050. The net position is at 31% (as of last week) which is very high considering Gold is not yet in a bull market. Too many speculators are left. Two years ago Gold made a low around the same price (~$1200) with its net position at only 6%!
Gold Weekly & Gold COT
Another reason Gold likely has more downside ahead is the US$ bull market may not be finished. While Gold has held in very well with the rising US$, it failed to rally when the US$ corrected from 100 to 93. If the US$ had put in a major top then precious metals would have surged. This chart argues that the US$ has another push to the upside before it makes a major peak.
US$ Bull Analogs
We are still waiting for Gold to make its final break lower. In considering history, technicals and sentiment, we have little reason to think Gold will break to the upside. Mind you, we are huge gold bulls and expect a very sharp rebound from the $1000-$1050 area. If and when Gold reaches that area it will do so in a very oversold state with very negative sentiment. The combination of those factors (very oversold, very negative sentiment) meeting with very strong support can produce big rebounds. If metals are heading to new lows then it would likely create one last chance to buy quality junior miners at fire sale prices. Consider learning more about our premium service including our current favorite junior miners which we expect to outperform in the second half of 2015.
Jordan Roy-Byrne, CMT
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