Impressive Precious Metals
The advance in the precious metals markets has been impressive. It is remarkable that the advances in Gold and Silver have not been accompanied by aggressive commercial selling. In fact, the net commercial short position in Gold is little changed from the Dec 2016 low – meaning that commercials have NOT sold into the advance. A similar profile exits in Silver. Speculators have a COT profile in both Silver and Gold that suggests a sizable war chest for buying.
I just have one major problem with the Gold market (and to a lesser degree with Silver). Historically there have been recognizable chart patterns marking major highs and lows in Gold. Gold seldom makes a major trend change without “ringing a bell” with classical chart construction. Gold did not display a chart bottom at the Dec 2016 low. Nor does Gold presently display a recognizable continuation pattern. Some chartist considers the trendline connecting the Sep 2011, Oct 2012, Jul 2016, Apr 2017 and Jun 2017 highs to be important – I am not among such chartist. I hold down trendlines in very low technical regard.
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One possible bullish interpretation of the weekly Gold graph is that of a complex H&S bottom dating back to mid-2013. There are a few problems with this interpretation. First, I view the left shoulder as belonging more to the Aug 2011 to Dec 2015 decline than to a singular bottoming pattern. Second, the duration of the right shoulder will not be balanced with the left shoulder until mid-2018. Third, the volume in Gold is not consistent with a valid H&S. Notice on the real-range graph that the average weekly volume of the right shoulder exceeds that of the head (except spike volume in Jul 2015) and the left shoulder. One must always question an H&S pattern when the largest daily volume is in the right shoulder position.
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It is easier to identify bottoming conditions on the weekly Silver chart. First, note the 10-month H&S bottom completed in Apr 2016 (red box). Second, the period from Aug 2016 to present can be viewed as a symmetrical triangle top completed in early Jul and then followed by an “end-run” or “end-around.”This would-be a very constructive interpretation, if correct.
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