Wednesday , 20 September 2017


Gold: Wait for Signs of Stabilization Before Buying In – Here’s Why

We are seeing signs of a bottom…in gold…but… prudence calls for waiting for some signs of stabilization before getting long. I would rather miss the first 10-20% move than lose another 50% should I get long prematurely. [Let me show you some charts that illustrate my caution.] Words: 288; Charts: 6

So says Cam Hui (http://humblestudentofthemarkets.blogspot.ca) in edited excerpts from his original article* entitled Watching Silver for the Bottom in Gold.

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Hui goes on to say in further edited excerpts:

The chart of GLD is showing the classic signs of a capitulation bottom:

The same goes for GDX:

As much as my inner trader is itching to jump onto the long side with both feet, a falling silver/gold ratio is flashing a caution signal. The chart below shows the silver/gold ratio as the solid line and the gold price as the candlestick chart. If silver is the high-beta version of gold, i.e. the poor man’s gold, why is the silver/gold ratio continuing to fall here?

In the last couple of instances where gold had bottomed, the silver/gold ratio bottomed at about the same time. Here is the 2008 bottom:

Here is 2004:

The most charitable explanation that 2013 corresponds to the 2001 gold bottom, where the silver/gold ratio continued to fall. As the gold price stabilized, rallied and then fell back to test the bottom, the silver/gold ratio stabilized, though it was several months late in confirming the start of the secular gold bull.

The markets in 2011 and 2013 may not be directly comparable. 2001 was the end of a multi-decade secular gold bear market. Today, the price of gold peaked out in late 2012 and fell back below important technical levels after a long bull market.

Bottom line

We are likely seeing a short-term bottom for gold here. On the other hand, don’t be so sure about the intermediate term trend. There may be more downside to come…

Editor’s Note: The author’s views and conclusions in the above article are unaltered and no personal comments have been included to maintain the integrity of the original post. Furthermore, the views, conclusions and any recommendations offered in this article are not to be construed as an endorsement of such by the editor.

*http://humblestudentofthemarkets.blogspot.ca/2013/04/watching-silver-for-bottom-in-gold.html

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