With Taper Talk, Is Gold in Some Trouble?

Through all the years of writing this letter dating back to 1981, I have never found a technical analyst who has been better from my perspective than Michael Oliver (www.OliverMSA.com). My major need from a technician is to help me avoid major sector declines and to alert me to when major bull markets are poised to begin. No one has been better for me personally than Michael. So I have paid a lot of attention to his December 12 warning that in the short term we may experience some painful declines in the price of the yellow metal as taper talk exerts some downward pressure. Given that possibility, it’s good to set aside some cash resources to pick up some super bargains when the next upward trend begins. In the meantime, in this letter, I will continue to focus on the fundamentals of some of the most exciting gold and silver exploration stories I have seen since the inception of this letter on October 15, 1981.

“In recent reports we’ve focused on a weekly segmentation of this quarterly momentum chart. And on that chart there was a surge in late November that produced a weekly close credibly over the dashed red horizontal we’ve plotted. We thought that positive action (if coupled with silver doing the same—which it did not) would warrant a call that gold is back into an upside trend after a year and a half of what you see on the top chart: down, up, down, up, and currently about in mid-range.

“Here we back up and look at monthly bars measured against the 3-qtr. avg. Back in January this year the zero line was broken below (circled). That was structurally important because two prior lows had used support just above that zero line—in early 2019 and March 2020. That breakage occurred as price dropped down into the $1870s (see our January 8th alert report in that regard). Two months later the March low occurred at $1673. Once we saw some recovery from that low we argued “the low” was in place, and so far that has been the case. But having a low in place and actually turning up and sustaining is a different thing. Well, despite that weekly close in November that was briefly above the red horizontal, the action wobbled back down into what looks like a basing pattern on quarterly momentum, similar to the action from late 2014 to early 2016. Yes, MSA identified some numbers reached at the low two weeks ago that concerned us enough to issue a caution/risk-control situation regarding gold (especially for leveraged longs). If we don’t see further downside soon, MSA will lift that caution flag. But the main thing we’re looking for now is agreement from silver regarding upside trend resumption, and for gold to produce another weekly close (or preferably a monthly close) above that red horizontal. Adjusting the new 3-qtr. avg./zero line for next quarter, we find it rises slightly in gold’s case (and drops for silver). The 3-qtr. avg. this quarter is $1778.5; next quarter it’s estimated to adjust up very slightly to $1784.80.

“A monthly close for December at $1825 or higher will generate a monthly close on the momentum chart above that pivotal red line, or next quarter a close at $1831.20. MSA will also offer an intramonth traded level that will indicate upside resumption after this monthly close. By the way, if you get a magnifying glass and look at the monthly price action of the past six months, you’ll see that the range of monthly closes has been from a low close in June at $1771.60 to a high close in August at $1815.80. That’s less than a 3% range. True, the bulls might not be “in charge” at the moment, but despite the supposed all-importance of a Fed policy shift stated in June (the assumption being it will be sustained?!), the bears haven’t managed to sink gold and must be very frustrated. Give them another week or so to do their thing. Or not. Meanwhile, watch the above numbers and watch silver!”

About Jay Taylor

Jay Taylor is editor of J Taylor's Gold, Energy & Tech Stocks newsletter. His interest in the role gold has played in U.S. monetary history led him to research gold and into analyzing and investing in junior gold shares. Currently he also hosts his own one-hour weekly radio show Turning Hard Times Into Good Times,” which features high profile guests who discuss leading economic issues of our day. The show also discusses investment opportunities primarily in the precious metals mining sector. He has been a guest on CNBC, Fox, Bloomberg and BNN and many mining conferences.