By The Gold Report

Source: Clive Maund for Streetwise Reports   11/19/2017

The signals for gold are mixed, says technical analyst Clive Maund, who delves into the ramifications.

Gold appeared to break out on Friday, but the situation is
contradictory because on its price charts it appears to be in position
to begin another upleg within an uptrend, but its COTs are still neutral/bearish at best, and don’t appear to allow much room for a rally,
while the dollar Hedgers chart is still calling for the dollar to
advance, despite its downturn last week.

On gold’s 6-month chart we can see how, after weeks of indecisive
sideways movement, it broke sharply higher on Friday, looking like it
has aborted the potential Head-and-Shoulders top that we earlier
observed. With the rising 200-day moving average having pulled up
beneath the price, it is in position for another upleg, especially as
the 50-day has dropped back to close up with the price and 200-day,
creating a bullish bunching of all three.

While volume was unimpressive on Friday’s rally in gold, such was not
the case with gold proxy GLD, which DID break higher on impressive
volume—the highest since early September. This is a positive sign.

The 2-year chart for gold enables us to see clearly what is going on.
Friday’s break higher looks like it marks the start of another
intermediate uptrend within the now clear channel shown, after the price
dropped back to ease its earlier overbought condition and test the
support level shown and the support at the lower boundary of the
channel. The potential Head-and-Shoulders top that we saw earlier will
probably soon be history. There has been a very noticeable build up in
upside volume in recent weeks, resulting in strong volume indicators,
especially On-balance Volume, which is at new highs. These volume
indications certainly augur well for gold in coming weeks.

Against the now positive picture on the gold charts we must weigh the
latest gold COT data, which is still neutral/bearish, as normally
wrong Large Specs are still holding a big long positions, although they
have eased somewhat, allowing room for a rally.

Click on chart to pop up a larger, clearer version.

We will end now by looking at the dollar and its Hedgers chart. On the
9-month chart for the dollar index we can see the Head-and-Shoulders
bottom that it broke out of last month. Following the breakout it has
reacted back over the past week or so to the extent that many are now
writing it off again. As we can see it is now dug into support near to
the upper boundary of the Head-and-Shoulders bottom and is also at
support at its rising 50-day moving average, and the big question is
whether this support is enough to turn it higher again, especially as
its longer-term charts look rather grim. The answer to that is that it
probably is, because of the bullish Hedgers positions that we will now
look at.

On the latest Hedgers chart we can see that Hedgers’ net positions are
now at levels that in the past have always led to a significant rally,
and that therefore is what we can reasonably expect to see again. This,
needless to say, would complicate the outlook for gold and other
commodities (copper’s latest COTs are still quite heavily bearish).

Click on chart to pop up a larger, clearer version.

Chart courtesy of www.sentimentrader.com

So how do we reconcile the now bullish looking gold charts, especially
the 2-year chart, with the still bullish looking dollar index chart, and
especially its latest Hedgers’ chart? With difficulty, that’s how. Here
we should note that it is possible for the dollar and gold to rally
together, although this is a rare event that would involve gold
outpacing the dollar, which could happen for example if money flooded
out of Europe into the U.S. as a relative safe haven, and also into gold
for the same reason. One scenario that is considered quite likely is
gold rallying up within its uptrend channel to the band of resistance in
the $1360–$1380 area where a COT extreme develops (which it is not
too far off now) before stalling out and dropping again.

An effective strategy for pragmatic traders to play this situation is to
be long the Precious Metals sector now, following the buy signal on
Friday, and to start taking profits on gold arriving at the resistance
level in the $1360–$1380 area and especially if it should make it all
the way to the upper boundary of the channel shown on our 2-year chart.
Alternatively, positions should be scaled back if it breaks below the
lower boundary of the channel and especially if it breaks below the
support level at about $1260.

Finally it is worth pointing out that we are perfectly well aware of the
price suppression of gold being undertaken in the paper market as the
physical supply continues to tighten, and that the Chinese and Russians
are wisely taking the opportunity this presents to vacuum up much of the
West’s gold on the cheap, so that later, and quite possibly at a time
of their choosing, they will be able to bury the dollar and forcibly put
the self-appointed global policeman with its 700-plus military bases
around the world “out to grass” as a result of its being economically
ground into the dust. At that time, when the Chinese may back the Yuan
with gold, gold will reassume its central and traditional role and is
likely to soar due to the extremely high level of paper assets relative
to gold. A growing awareness of the raw power that China now wields is
the reason why the U.S. has suddenly started being nice to China, which
has noted and learned the lessons from the U.S.’ treatment of Russia.

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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Disclosure:
1) Statements and opinions expressed are the opinions of Clive Maund and not of Streetwise Reports or its officers. Clive Maund is wholly responsible for the validity of the statements. Streetwise Reports was not involved in the content preparation. Clive Maund was not paid by Streetwise Reports LLC for this article. Streetwise Reports was not paid by the author to publish or syndicate this article.
2) This article does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility. By opening this page, each reader accepts and agrees to Streetwise Reports’ terms of use and full legal disclaimer. This article is not a solicitation for investment. Streetwise Reports does not render general or specific investment advice and the information on Streetwise Reports should not be considered a recommendation to buy or sell any security. Streetwise Reports does not endorse or recommend the business, products, services or securities of any company mentioned on Streetwise Reports.

Charts provided by the author.