Gold Bull Market Confirmed; $1450 The Ultimate Test

record gold holdingsTaki Tsaklanos:   According to our methodology, gold had to close at least 5 consecutive days above $1,291 to confirm a new bull market. Today is the 6th day on which gold managed to stay above $1,291 and, by doing so, gold sent an incredibly strong signal to the investment community.

We have a first confirmation of a bull market in gold, and, as said, June appeared to be a turning point in gold.

Gold’s price action is spectacular. On the daily chart, we now see a new pattern arising, and new resistance areas come into play. By far the most important observation on gold’s chart is the trendline which connects gold’s all-time highs with the 2012 highs (pink line). That trendline suggests that $1,450 is the next secular resistance point. That happens to coincide with a strong resistance area (see in pink on below’s chart) which is the highest resistance area after gold’s collapse in 2013. Do not underestimate the stopping power of this resistance point ($1,450) and area ($1390 – $1480).

gold_2011_July_2016

Although gold’s price action is spectacular, we observe that the precious metals complex shows extreme readings, which is not a healthy state. If anything the exceptional rise of gold miners, doubling since February of this year, brought miners at a mega resistance area (indicated in red on below chart). This really suggests that the upside potential is limited at this point, certainly short term.

GDX_2011_June_2016

Furthermore, and by far our biggest concern, the Commitment of Traders report shows how extreme the positions of traders have become. As said repeatedly, an extreme level of commercial net short positions, which were acquired at a higher than average pace, is very bearish. The red annotation on below’s chart makes our point. The chart goes back 9 years. Never before have we seen such a fast accumulation of commercial net short positions. Moreover, current net commercial short positions are the highest ever. We hate to say this, and it may sound very counter-intuitive at a time when everyone seems to be all-in gold, but this is a very bearish setup. The COT report is not a timing indicator, but it gives a general indication of the upside potential, which is limited at this point.

gold_cot_4_July_2016

CONCLUSION: While gold’s price action is spectacular, its chart shows heavy resistance is near. Similarly, gold miners have reached mega-resistance, and the COT report is extremely bearish.

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