By The Gold Report
Technical analyst Clive Maund discusses the factors he sees pulling gold down.
Although a major precious metals sector bull market has certainly started, various fundamental and technical factors came together last week to suggest that a significant correction to the recent strong run-up has now started.
The main fundamental development was the announcement that there will be a Trade War summit between China and the U.S. early next month, with hopes being expressed that this may lead to compromise or some kind of truce. Whilst the chances of improvement may be slim, the market has got what it wants for now which is hope, and this hope should continue at least until this meeting, which provides the excuse for the markets to go “risk on” until then, which is why the stock market broke higher last week, delaying but not eliminating our crash scenario.
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A return to “risk on” is clearly not good for the precious metals, which, until last week, had been benefiting from a flight to safety as had the dollar, creating the unusual situation where the dollar and gold were rising at the same time. Now, in a risk on environment they are suddenly out of favor again.
In addition to this fundamental argument we have a range of technical indicators pointing to a correction in the precious metals sector that we will now look at. They include its overbought status, overly bullish sentiment readings and COTs showing extreme readings.
Starting with gold’s 6-month chart, we can see that it doesnt look too badyet, but if we look more closely we can see that it is on the point of breaking down from the rather steep uptrend in force from late May, with it having dropped back on quite high volume the past two trading days, and it is noteworthy that Thursday’s drop was the biggest 1-day drop for a long time, making it more likely that it signals a reversal. In addition, the MACD indicator shows that momentum is starting to flag.
Click on chart to pop-up a larger, clearer version.
The COT is backed up by the latest Hedger’s chart, that goes back to 2010, which shows that positions match the extreme reached in the summer of 2016, and as we know this was followed by a brutal correction for the rest of the year. While a correction certainly looks likely it shouldn’t be so deep, because there is a big difference this time round, which is that gold has broken out into a major new bull marketit was still in a basing phase in 2016.
Click on chart to popup a larger, clearer version.
Chart courtesy of sentimentrader.com
Lastly, the Gold Miners Bullish % Index is still at 87%, and while we were waiting to see if it would hit 100% as it did in 2016, it doesn’t have to, of course, before a reversal occurs, and 87% certainly shows that enough people are bullish to warrant a trip to the fleecing shed.
Originally published on CliveMaund.com on September 9, 2019
Clive Maund has been president of www.clivemaund.com, a successful resource sector website, since its inception in 2003. He has 30 years’ experience in technical analysis and has worked for banks, commodity brokers and stockbrokers in the City of London. He holds a Diploma in Technical Analysis from the UK Society of Technical Analysts.
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The above represents the opinion and analysis of Mr Maund, based on data available to him, at the time of writing. Mr. Maund’s opinions are his own, and are not a recommendation or an offer to buy or sell securities. Mr. Maund is an independent analyst who receives no compensation of any kind from any groups, individuals or corporations mentioned in his reports. As trading and investing in any financial markets may involve serious risk of loss, Mr. Maund recommends that you consult with a qualified investment advisor, one licensed by appropriate regulatory agencies in your legal jurisdiction and do your own due diligence and research when making any kind of a transaction with financial ramifications. Although a qualified and experienced stock market analyst, Clive Maund is not a Registered Securities Advisor. Therefore Mr. Maund’s opinions on the market and stocks can only be construed as a solicitation to buy and sell securities when they are subject to the prior approval and endorsement of a Registered Securities Advisor operating in accordance with the appropriate regulations in your area of jurisdiction.