The Gold Price

The monthly average price of gold as well as the 20-month and 40-month averages are displayed above. Clearly, gold has been basing since its bottom in early 2016. At the end of this year, the average price of gold for December was $1,264.19. That compares to its 20-month average of $1,263.84 and its 40-month average of $1,246.99. The basing process is even clearer when you check out Michael Oliver’s momentum charts below.

Michael Scores Again!

For the third time this year, Michael Oliver was right on his calm-mannered approach to gold as most chart technicians were having nervous break­downs over prospects of a new gold bear market. From the time he made his call early in 2016, Michael has been confident that we are in the early stages of a major gold bull market. But last week was the third time this year that he drew a line in the sand and said that if we fell below that line, he would turn neutral, not bearish. Just as on the prior two occasions, the price of gold came within a whisker of crossing the line but stopped short of doing so. It is Michael’s proven track record that has caused me to remain so confident in his work and why I request his presence on my show every week. I’m sure one of these times he will be wrong. But I just have not found him to be wrong very often. While we focus mostly on gold, I keep an eye on a number of other markets and his calls are right, time and time again. He is right too often to attribute it to “dumb luck.” He is a very seasoned technical analyst who worked with some of the top technical people in the world in his earlier days and now he is using his own proprietary tools to serve his subscribers well. If you are a serious investor, you would do well to consider subscribing at www.­OliverMSA.com. Given his track record, I am passing along what he is saying about gold as we start 2018. This missive including the charts on your left was published this past Thursday, so it’s very much up to date.

2018: Gold

We begin our first look at key markets in 2018 with gold.  

MSA issued long-term buy signal on gold in early February 2016 as price moved up into the zone between $1140 and $1160 (arrow on momentum and comparable point on price). Many of the long-term momentum oscillators that we maintain broke out then over the top end of massive horizontal basing patterns, as below.

No downside moves since have altered long-term momentum’s positive trend. Instead, we see an upward push in long-term momentum readings, with a flat level overhead (red lined) as a probable next breakout layer. 

Until now our analysis has largely ignored price chart action. Had we flinched at every downside price swing, we would have had our subscribers out, then in, then out, then in, umpteen times since our original buy signal in February 2016. And we’d have done them no service in the process. 

We do have some respect for price action, especially once a trend change occurs and that trend matures. But at tops and bottoms price is almost always the last to signal trend change. It’s the worst place to look for timely clues. Momentum is first. But right now we have them both more or less aligned, so we note some coincident features on both charts. With one day of trading left this year and with gold now trading at $1296, we identify some numbers for you as we move into 2018. 

If annual momentum closes a month more than 10% over the 36-mo. avg. (red horizontal), then assume that’s a renewed breakout. The peak monthly closing reading of the past two years was precisely 10% over the zero line back in mid-2016. In January 2018 if the February 2018 gold contract (the nearby active future) were to close the month at or above $1346, that would post a new closing oscillator high for the past several years and take out the summer 2016 high close on the momentum chart. 

Price is now pretty much in alignment with that. Note the green line on the monthly price chart. It’s equivalent on momentum already came out in early 2016, but for price the line connecting the rally highs that followed the April-June crash of 2013 is still intact and not far overhead. Unbroken to this point. We plot through rally highs that have occurred since the crash lows of June 2013. They align fairly well. That nearly flat trend line comes through such that a monthly close credibly above $1350 would clear that price chart line.

Not much disagreement now between momentum and price. For momentum it becomes a refreshed breakout and for the price chart it becomes the first major base breakout . And it’s a large base for price, spanning four and-a-half years. (“Bigger the base, bigger the move.”) 

In our Weekend and Short Term reports this week we identified levels in the $1280s that we wanted to see cleared. That’s now been accomplished. The next major hurdle (second to the momentum breakout of February 2016 ) is a bit less than 4% above the current traded price for momentum and a bit more than 4% above the market for the price chart. Pretty close agreement now. And at that point long-term momentum and price will tend to join hands as gold proceeds, renewed and refreshed after having shaken out so many over the past year. 

Note: For most major markets we will wait for year-end closing numbers and recalculation of annual and other long-term momentum metrics. In the case of gold the very minor changes for next year’s and next quarter’s long-term averages will not impact our assessment, therefore we issue the 2018 gold preview prior to the close of the year.

As we end 2017, my IDW has hit a new high at 161.64. This seems to be in sync with Michael Oliver’s work as well as the views of Michael Pento, as expressed on my radio show last week that 2018 is likely to be the year when a major bear market in debt commences. Indeed, that is the event that Oliver believes is likely to finally shake the equity markets down.

Now I want to share with you some views of economist John Williams on the markets as we head into 2018. In his December 28 letter, here are some of his remarks:

“U.S. Dollar and Financial – Market Instabilities and Turmoil Remain at High Risk, Along with Continued Deterioration of Domestic and Global Economic and Political Circumstances. Irrespective of heavy press hype to the contrary, and in the context recent FOMC tightening, despite Federal Reserve Chair Yellen’s perception of a “highly uncertain” economic outlook, the economy indeed is not recovering or booming.

“Where the Wall Street proponents of a never-ending stock-market rally have hyped temporary, nonrecurring economic boosts from natural disasters into a year-end 2017economic boom, an unhappy period of the markets adjusting to underlying real-world circumstances looms likely in the next month or two, early in 2018. Negative economic “surprises” increasingly should shock the markets and the U.S. dollar on the downside. As the reported the economic downturn intensifies, the FOMC should be forced into an “unexpected” policy retrenchment, moving back towards quantitative easing as outlined in Federal Reserve policy.

“In such circumstances, the U.S. dollar and financial markets remain at extraordinarily -high risk of panicked declines, again, increasingly likely in the very near term. Today’s General Commentary, and the Opening Comments and an expanded Hyperinflation Watch of Commentary No. 927 reviewed some background to real – world economic conditions, continuing from the Opening Comments and brief Hyperinflation Watch of Commentary No. 925.

“Those comments speak for themselves. Holding physical gold and silver remain the ultimate hedges—stores of wealth—for preserving the purchasing power of one’s U.S. dollar assets, in the context of liquidity and portability during times of high inflation and currency debasement, and/or political – system upheaval, discussed regularly here.”

About Jay Taylor