In the last update we had thought that gold might escape its usual seasonal malaise this year, but it didn’t and went into a rather sharp downtrend and dropped again quite sharply on Friday. The good news though is that this drop has not impacted the big picture at all, which remains strongly bullish, and a bonus is that this drop has flushed out a lot of remaining weak hands, as we will see when we come to the latest COT charts and set the sector for a reversal soon leading to a strong uptrend.
On the latest 6-month gold chart we can see the downtrend in force from early June which on Friday took the price beneath the May low. Moving averages are in bearish alignment and gold is now oversold on its RSI and getting oversold on its MACD indicator.
On the 20-month chart we can see that gold is being forced lower beneath a Dome pattern. With COTs and sentiment already becoming strongly bullish, we would not expect gold to drop further than the blue trendline shown, especially as bullish seasonal factors will be kicking in towards the end of the month too. We are therefore looking for gold to break out above the Dome before too much longer, which will be a strongly bullish development marking the start of a growth phase.
The long-term 8-year chart continues to show a large Head-and-Shoulders bottom completing in gold, and on this chart the drop of recent weeks looks miniscule and as we can see, it has not impacted this big picture at all. If this interpretation is correct, then we are an excellent point to buy here from a price / time perspective. It is rather amazing to think that this bottoming pattern in gold started to form way back in mid-2013.
Gold’s latest COT chart looks increasingly bullish, with the Large Specs at last giving up and “throwing in the towel” as shown by their long positions shrinking back quite dramatically over recent weeks, so that they are now approaching the extremely low levels seen at the December 2015 lows. This is very good news indeed for would be investors in the sector, and while there is scope for even more improvement, as would be occasioned by further losses across the sector, the scope for such improvement is now very limited. Meaning that we are either at or very close to a major bottom here, so it is good time to load up with the better gold and silver stocks, and here we should note that this sector tends to be contra-cyclical to the broad market, so it is likely to do well if the broad market drops.
