From the desk of Catalin Chiloflischi, CEO Canarc Resources

I have followed Florian Grummes for some time now, and and think this recent piece is a must-read for gold investors looking for guidance on how to trade the pre- and post-US election timeframe. ~CC

The US-elections are getting close and while mainstream media is already sure about the outcome I think there is still room for a big surprise. Looking at the market it is clear that the participants are not as sure as the mainstream media. Otherwise we would have already seen a sustainable rally in the stock-market. But the S&P500 is moving sideways somehow confirming the recent break of its uptrend-line.

At the same time the gold market is struggling to get back on its feet although it could be much lower in regards to the strong US-Dollar. This can certainly be interpreted as some inner strength too. So far the 200-MA has hold and also many of the mining stocks have turned around at this important moving average. But we´re still missing a convincing bounce in the metals and I think we won’t get it before the elections anymore.

Fundmanagers and market participants surely don’t want to have another Brexit moment so they remain either at the sidelines or keep positions small in front of US-elections. You should do the same and not overexpose yourself at the moment. If Hillary gets elected we will get the rate hike in December which is already priced in. If Trump is winning instead… CLICK HERE for the complete article

The USD Index confirmed the breakout above March highs, silver outperformed temporarily, miners underperformed and… Despite this bearish combination, precious metals didn’t decline. Why wasn’t that the case? Will they still slide or will they rally from here? Let’s take a closer look at the charts and find out (charts courtesy of http://stockcharts.com).

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In yesterday’s alert, we wrote the following:

We have indeed seen the confirmation of the breakout – the USD closed above the March highs for the third consecutive day and the implications are bullish for the USD and bearish for precious metals. However, the USD also reversed on an intra-day basis, indicating a good possibility for seeing lower prices later this week. Based on the confirmation of the breakout, the move lower is not likely to be significant though. It will be interesting to see how metals and miners perform in light of a move lower in the USD. So far the USD Index declined a bit (to 98.5) and gold didn’t rally – in fact, it moved about $2 lower.

The implications are bullish for the USD as the next strong resistance is very close to the 100 level. Yesterday’s performance of precious metals was weak – gold, silver and miners declined despite a move lower in the USD in terms of closing prices. What’s even more important, the intra-day decline in the USD didn’t trigger a rally in PMs. This suggests that precious metals and mining stocks may be preparing for a move lower, not higher in the coming days and weeks.

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The rally to 100 or so is in tune with the likely medium-term price path based on the analogy to 1997 – 1999. Back in 1999, The USD’s rally didn’t end or pause for longer until the dollar moved above the rising red line. After this breakout, the USD Index rallied some more and then declined, moving back below the line by more or less as much as it had rallied above it earlier. Applying this analogy to the current situation provides us with the 100 level (approximately) as the short-term target and then 97.50 – 98 as the target for the subsequent correction. This provides us with bearish implications for the precious metals sector.

Naturally, there’s much more to the outlook for PMs than just the USD Index.

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Looking at gold, we see that the corrective upswing is likely very close to being over.

Why – after all it didn’t move to any significant resistance level so far?

Because price is only one of the 2 key factors that need to be considered – time is the second one. Some say that it’s even more important than price.

We marked the previous short-term corrections after substantial (and a little less than substantial) declines. We marked the first (July – August 2014) rally with a red rectangle and then we copied it to other corrective upswings. The latter don’t fit in terms of size, but we did a pure copy&paste action to emphasize that in terms of time the corrections are truly very similar.

Applying the above to the current situation suggests that the time for a corrective upswing is either up, or almost up.

Let’s move back to the price factor. Why didn’t gold rally higher (on a side note, please note that we were able to make a profitable trade on this rally even though it was small)? Let’s start with discussing why it rallied at all – after all, the medium-term trend remains down.

Gold declined sharply and significantly and it simply had to correct – no market moves in a straight line either up or down (with the final stages of bull markets being an exception), so a corrective upswing was simply likely.

The corrective rally was likely to take gold higher, because the USD Index was likely to correct more significantly. However, instead of declining, the latter corrected its rally by moving sideways around the 97.75 level. The fuel that was likely to be added to the flame never arrived. So, what did gold do? Something natural – it still corrected by rallying, but the size of the move was much smaller than what was likely to be seen (a rally to $1,300 or so). Without the additional fuel, the flame was smaller, but still present.

Yesterday’s price action in gold, silver and USD Index shows that even if the decline in the USD Index does indeed follow, the former may not react to it – the correction that was likely to be seen, was likely already seen (or it’s almost over now).

Consequently, the rally in precious metals is likely very close to being over, even though the strong resistance levels have not been reached yet.

As far as gold stocks and silver stocks are concerned, we wrote the following in yesterday’s alert:

Even though mining stocks moved higher as well, miners closed the session visibly below the previous high. Mining stocks seem to be underperforming gold, which is a bearish sign.

The volume that accompanied yesterday’s move higher was similar to the one that we saw on Monday, when miners declined and it doesn’t have much implications, apart from the fact that it makes the current situation similar to the previous tops in miners when they moved sideways for days (mid-June, early July, mid-August) before moving lower. It seems that it was a good idea to take profits and close the long position earlier this week.

In the previous alert we emphasized that once a bigger daily decline was seen, the rally was likely over:

They all have one important thing in common. Once we saw a single daily decline that was significant (even without discussing detailed numbers, take a look at the chart – at the first sight, you can see that the daily declines in mid-June are significant whereas the decline in the very early June is not), the entire short-term rally was over. The only thing that sometimes followed was a move back to the previous high or a very tiny breakout above it, which was invalidated anyway and followed by a decline. Yesterday, we saw the first significant daily decline since this short-term rally started.

Consequently, we should not expect much higher prices in the coming days – conversely, we should expect another downswing to follow rather sooner than later.

The above remains up-to-date and what we saw yesterday – higher volume during the daily decline – is yet another bearish confirmation.

So, why not open short positions in the precious metals sector right away?

Silver.

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We’ve written many times that silver’s short-term outperformance of gold is a bearish sign and makes a decline in the following days likely. LIKELY, not imminent. There have to be times when the above doesn’t work right away and this also gives us some information – information that appears very important at this time.

What happened, when the mentioned signal was seen and it didn’t work immediately? We saw an additional short-term upswing and then a decline. The size of the subsequent move higher varied, but it was present. So far we only saw a tiny move higher after Monday’s reversal, so it seems that another upswing shouldn’t surprise us – in fact it would likely serve as the perfect bearish confirmation if silver rallies greatly outperforming gold and mining stocks.

This confirmation may arrive very soon, shortly or it may not arrive at all and we’ll keep our eyes open and report to our subscribers accordingly, but for now, it seems that seeing a confirmation is quite probable in the coming hours or days.

Summing up, it seems that we are on a verge of another big decline in the precious metals sector, but we haven’t seen enough bearish confirmations to open a position just yet. It seems that we’ll see them soon, but it seems that it’s too early to open a speculative short position just yet. We can compare the situation to what we saw in crude oil several days ago – the outlook had been unclear for some time, but when we finally saw bearish confirmations, we entered short positions and they are already profitable. We’ll likely see the confirmations for precious metals sooner rather than later.

Thank you.

The above estmations are based on the information that we have available yesterday (Oct. 27, 2016). We will be monitoring the market for opportunities and report to our subscribers accordingly. If you’d like to join them, we invite you to subscribe to our Gold & Silver Trading Alerts today. If you’re not ready to subscribe today, we invite you to sign up to our free gold mailing list – you’ll receive our Gold & Silver Trading Alerts for the first 7 days as a starting bonus.

In June the UK shocked the world – or at least the world’s elites – by voting to pull out of the European Union. Economists predicted disaster, EU leaders threatened pain for British exporters and tourists, and the media settled in to watch the UK shrivel and die.

Four months later, the appropriate response is a yawn rather than a scream.

UK economy set to shrug off Brexit in latest GDP figures…For now

(CNBC) – The first indications of how the U.K. economy is performing in the aftermath of the Brexit vote will be known this Thursday, with the release of quarterly gross domestic product (GDP) figures.

Analysts told CNBC they forecast a 0.4 percent growth in the third quarter of this year – an “upside surprise” following the decision last June to leave the European Union. Prior to the vote, many market observers were pointing to economic contractions if voters opted to leave the EU.

The pound, however, did fall hard in foreign exchange markets…

…which is actually great news for British exporters, who are winning round one of the post-Brexit currency war by selling suddenly-much-cheaper stuff to the rest of the world.

The only losers? Britons who held their savings in local currency and saw the value of their bank accounts fall dramatically. But their solution was actually pretty simple: convert their pounds to gold and watch it soar.

Britons who did this are up about 25%, which is a pretty good year’s work for any money manager, amateur or professional.

As the “but in the long run Brexit will still be a disaster” drumbeat gets louder and negotiations with the EU drag on, gold should remain a simple, low-stress way for anyone with pounds to sail through the process unscathed.

The broader lesson? As the world descends into debt-driven chaos in coming years, the above charts will be replicated in most national currencies, giving all of us chance to learn from the UK’s example.

……also Michael’s Mid-Week Update: Vancouver’s Hot Real Estate Market Not Finished Yet!

The big decline in the precious metals appears to already be underway (even though we are in a short-term corrective upswing) and it seems that gold will move much lower in the coming months even though it’s likely to move higher in the coming days. The big decline remains to be the most important development for gold and silver investors. Why? Because this decline’s end is likely to present the ultimate buying opportunity for precious metals and for mining stocks.

Before elaborating on this all-important issue, let’s briefly discuss the current events. The USD Index rallied yesterday and it moved higher also today, reaching its March 2016 high. We previously wrote that it was possible that we would see something like that and we also wrote that it didn’t really matter, as metals and miners were not likely to respond to an additional rally at that time (before a corrective rally). That’s exactly what (hadn’t) happened – metals and miners moved only a little lower yesterday and they are almost no changes today. This means that the precious metals sector continues to show strength relative to the USD Index and thus a rally in the former is still likely and it seems that our profits on long positions will become bigger shortly.

Having said that, let’s move to the most important issue of today’s alert.

We discussed the final bottom target for gold in the previous Gold & Silver Trading Alerts and in today’s alert we focus on something even more important – we discuss WHEN gold is likely to bottom.

What may seem odd, today’s alert will not feature any gold, silver or mining stocks charts as the key detail is not visible on any of them, but on a quite different chart – the one featuring the past two decades of the USD Index. Why? Because, in a globalized economy and interconnected financial markets, no asset can move totally independently from other ones – and this is especially the case with gold and the USD Index during major moves. In most cases (we discuss the exception later in today’s alert), when the USD plunges a lot, gold is likely to rally a lot and when the USD soars, gold is likely to decline substantially. That’s likely to change in the final stage of the precious metals bull market, but it doesn’t seem we are at this point yet.

Therefore, the million-dollar question can be asked differently: when is the USD Index likely to form a very important top in the coming months?

In our opinion, it’s most likely to happen in January or February 2017, with the second half of January being the most probable target.

Why? Let’s take a look at the chart (charts courtesy of http://stockcharts.com).

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We’ve looked at the above chart and analyzed it hundreds (if not thousands) times, but it hadn’t been until this week that we noticed a major analogy that becomes apparent only after connecting a few dots that – individually – may not seem clear at all.

Let’s start with the discovery. What was the key thing that happened in the USD Index in the past few years? It rallied sharply (pushing RSI well above 80) and broke the all-important 100 level – or more precisely – it tried to break above it, but failed and declined substantially. There were other attempts and they failed as well and were followed by an even bigger decline.

Since history rhymes, the big question is: “When did we see something similar?” Almost 20 years ago – in 1997. That’s the only time in the past 20+ years, when the weekly RSI was well over 80 (besides late 2014 and early 2015). Paraphrasing Calvin Candie’s quote from a Tarantino movie: this fact alone is something that should get your curiosity, but the big number of other similarities and how precise the key one is, should get your attention.

After the USD Index initially moved above 100 in August 1997, it declined sharply and it took several months before the next rally begun. The rally started after the USD moved to the 50-week moving average. That’s exactly what we saw in the more recent past – in 2015. What happened next in 1998? The USD tried moving above 100 a few more times, but finally declined substantially and this time the decline took the USD to a new low. Again, the same thing happened in 2015 and 2016. The shape of the rallies and declines was not identical, but it’s nothing to call home about – after all, very different events accompanied both time frames.

Up to this moment, the above analogy can be viewed as interesting, but perhaps not particularly important. We saw the above previously and it was not shocking. What changes everything is an additional analogy – the size (in terms of both the price and time) and steepness of the 1997 – 1998 decline.

We marked the entire decline with a red line and we copied and pasted this line onto the 2015 – 2016 decline. That’s right – the red line that you can see from the 2015 top to the 2016 bottom is not drawn based on these extremes – it’s the exact copy of the 1997 – 1998 decline. However, we bet that you wouldn’t be able to guess that by looking at the chart as the moves are almost identical. The accuracy of the analogy is striking, especially since there are already quite a few similarities between the 2 situations.

Of course, the moves are not 100% identical, but are so close that we can view them as such. The previous decline unfolded over 436 days and the USD declined by 9.12 (8.999%) bottoming very close to the 92 level and the recent decline was 414 days long and the USD declined by 8.83 (8.768%) bottoming very close to the 92 level. Extremely similar.

In light of such significant similarity, we simply can’t ignore the likelihood that what followed the 1998 bottom is going to follow the 2016 bottom as well – especially that so far this similarity is playing out near-perfectly.

Plotting the 1998 – 1999 rally on the current situation provides us with approximately 104 as the next target, but let’s focus one something different. How is the USD Index moving after the bottom?

Back in late 1998, the USD Index moved sharply higher, above the red “target line” and topped close to 97. Then it declined below 94, but the key thing is that it declined below the target line by approximately as much as it had previously rallied above it (in other words, the “target line” rallied through the middle of the short-term decline). The bottom was formed more or less at the rising support line based on the previous important bottoms (rising red dashed line).

What happened earlier this year? Pretty much the same thing – the USD Index moved sharply above the rising red “target line” (the exact copy of the “target line” from 1998 – 1999), then it declined below it by as approximately as much as it had rallied above it previously, and bottomed. The bottom was formed more or less at the rising support line based on the previous important bottoms (rising red, dashed line).

The similarities are indeed extraordinary and the implications are very important. As far as the shape of the upcoming rally (the way the USD gets to its target) is concerned, we don’t have to see identical performance, just as the way in which the USD tried to move above 100 in 1998 wasn’t very similar to the way it tried to move above the same level in late 2015 and early 2016. 

Still, the rally is very likely to end in a similar way to what we saw back in 1999 in terms of length and the size of the rally. So, when and how high is the USD Index likely to move?

At the first sight we see that the target is at approximately the 104 level. More detailed calculations:

USD rallied by 12.28 (13.32%) from the 1998 bottom to the 1999 high (104.5). If it rallies by the same amount from the 2016 bottom, we get 104.16 as the target and if it rallies by the same amount percentage-wise, we get 104.11 as the target. However, since the recent decline was not as big as the previous one (it was 96.8% of the 1997 – 1998 decline), we might expect the following rally to be smaller as well. Applying the above percentage to the above methodology provides us with 103.77 and 103.73 as targets.

Overall, we end up with what we see on the chart – the USD Index is likely to for a major top close to the 104 level.

As far as time and the WHEN question are concerned, we saw the bottom on May 3, 2016 and adding 269 days to this date (that’s how long the USD declined from the 1997 top to the 1998 bottom) gives us the time target of January 27, 2017. However, since the recent decline took a bit less time than the previous one (95% of the previous decline’s time), we might expect the following rally to take less time as well. Applying the above percentage to the above methodology provides us with January 13, 2017as the target date.

Moving back to the issue of the 104 level as the target – there is also another very important technique that points to it. It’s the target based on the big reverse head-and-shoulders formation that started to form in late 2015 and was completed just a few weeks ago. The declining black line is the neck level of the formation and the breakout above it is now clear even from the very long-term perspective. The move back to it is still quite possible, but the implications are bullish for the following months nonetheless.

The size of the “head” in the head-and-shoulders and reverse-head-and-shoulders patterns is the size of the rally that’s likely to follow. We already saw the breakout (at about 96) so we can use this technique. We marked the size of the “head” and the target based on it with vertical, black, dashed lines. As discussed earlier, this technique points to 104 as the next major target.

Given the likelihood that we’ll see a big rally in the USD Index in the coming months, there is a very good possibility that we’ll see gold at new lows. It seems that we still have time to prepare for the ultimate buying opportunity in gold, silver and mining stocks, but this time is slowly running out.

So, will gold continue to plunge if the USD continues to rally, like it did in 1999 – 2001? Not necessarily. If could very well be the case that prolonged strength in the USD Index will not really be due to the inherent strength of the USD (or the U.S. economy), but due to weakness in the euro (if the latter continues to exist, that is) and in other major currencies. If this is the case, gold is likely to rally due to the demand from these other countries. Besides, the self-similar patterns are generally most useful for near-term price movements (it’s relative what is near term – in case of a multi-year analogy, several months are indeed near term) and not so much for price moves that extend far into the future. Consequently, the discussed analogy has important implications for the next several months, but not necessarily for the next few years. The USD Index could continue to rally, but not necessarily due to the self-similar pattern and not necessarily in tune with it (beyond the next several months).

Summing up, while the short-term indications for the precious metals sector remain bullish, the medium-term trend remains bearish and it seems that the final bottom will be formed in the first months of 2017, with the second half of January 2017 being the most probable time frame.

Meanwhile, it seems that the profits on our long positions will increase further before the trade is over and the downtrend resumes.

The above estimations are based on the information that we have available today (Oct. 21, 2016). We will be monitoring the market for opportunities and report to our subscribers accordingly. If you’d like to join them, please use this link to subscribe now.

Thank you.

Sincerely,
Przemyslaw Radomski, CFA
Founder, Editor-in-chief, Gold & Silver Fund Manager