Gold Update – Michael Oliver

Let’s look at some short to intermediate trend charts of gold, and assess the recent drop.

The drop three days ago finally and convincingly blew the bottom out of the price range that had prevailed from January to May. Gold and most markets dropped sharply together on Tuesday. 

We reiterate that the long-term trend (annual momentum) of gold remains positive and this action does not dent that situation. (See the final page for more comments in that regard.) 

This is effectively weekly momentum—the 15-day avg. is a smoothed 3-week moving avg.— plotted in daily bar format. 

Price comments: Gold’s range breakouts are notorious for being traps, such as the drop in mid- December. At that time, momentum merely matched the prior low and didn’t take it out, while price dropped $20 below the prior range bottom. Gold regrouped for several days and then went vertical. Recent action began with a peak in January and then several months of selling pressure, but the bears were unable to punch out the price low. It took them five months off the high to finally achieve that headline (and it was a headline in the WSJ yesterday) and take out the range lows. 

But weekly momentum is holding—so far—at and somewhat above the low readings of the past few months. We’re watching that aspect of the decline in momentum readings. Whether or not they can also take out the multi-month lows or whether the current non-confirmation will sustain. Next few days will likely answer that. 

More important is that the weekly momentum action has created three waves of downside, all within a parallel channel (the channel bottom is plotted first through low closing readings, and then the channel top through intraday peaks). That channel now identifies any push up through the zero line/15-day avg. as an upside breakout. 

Looking out to Wednesday next week, the 15-day avg. will likely be down around $1323 to $1324. 

Here we show a somewhat shorter-term momentum study, the 10-day avg. oscillator (same momentum charts were used in Dollar and Euro report yesterday). 

It is also clear with similar attributes. The price floor is gone; the momentum floor isn’t.

Also, momentum has developed a fine parallel channel with several low closes along the bottom and three peak closes defining the top. Three waves of downside with the third wave of momentum action not below the second wave’s low (or the year’s lows). 

Stability, even for a couple days, isn’t what bears need or want. That will generate momentum upside push towards the channel top. In the middle of next week that declining channel top and zero line will coincide at around a price-equivalent level in the $1302 to $1303 area. 

If the 10-day avg. momentum turns up and breaks out, it will likely provide enough impetus to in turn break out weekly momentum (page one) at its slightly higher trigger levels. Our focus now is on the day-to-day of both of these momentum charts. Also, of course, watching the Dollar and Euro as likely coincident situations. 

We recently said we’d regard a monthly close below $1290 as a “go to neutral” signal for gold’s long-term trend. Meaning our prior buy signal ($1140 in February 2016) would be neutralized and our certainty of trend direction sufficiently confused to go neutral. 

However, we retract that number and are currently working with various long-term momentum studies to come up with a valid “neutral” number. Too many indicators did not agree our $1290 monthly closing number. Therefore, please disregard it. We will issue an updated long-term report, likely with several long-term indicators if this decline persists. Suffice it to say that our new “neutral” long term number is likely to be several percentage points below $1290. For now, we suggest that you focus on these shorter-term and intermediate indicators for further signs that this drop isn’t what it appears to be. Mike Oliver

EDITOR’S COMMENT – Be sure to listen to Michael Oliver on my radio show almost every Tuesday. Michael is usually a guest during the first half of the show which starts at 3:00 PM Eastern Time. He has been so good in helping investors avoid getting whip lashed in and out of markets as most price-orientated technical analysts do. When he is on my show, we focus mostly on stocks, bonds, gold and currencies. But he covers many other markets for stocks and ETFs. Go to www.OliverMSA.com to learn more and to subscribe.

On your left is my monthly average price chart for gold along with the 20-month and 40-month average. From my viewpoint, this is a very attractive chart with the average price for the month of May being $1,306.61, $1,268.49 for the 20-month average and $1,260.60 for the 40-month average. From a longer term perspective, it seems to me gold has been in a basing posture since its massive decline from 2011 through 2013. If gold can hold above Michael’s go-to-neutral level, we gold bugs should soon look forward to happier days.

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