Seasonality for gold has a brief moment of favorable performance starting around this time of the year. Gold can move positively between early January into early March—typical upside is in the 3% range according to www.equityclock.com.
However, the precious metal tends to experience flat to poor performance after that point from March until late July. The chart below illustrates the longer termed downtrend on bullion that has been in place since 2011. The longer termed bearish trend is firmly in place, and suggest that rallies, when they happen, would be of interest to near-termed traders only.
Should gold be played?
My thoughts are that the potential for an oversold bounce in bullion is pretty good. On the daily gold chart below, you will see some of my old annotations as well as my newest annotations—which are on the right side of the chart. Some of the daily chart momentum studies are showing a little life- possibly bouncing off of their respective oversold zones. Moneyflow momentum (top pane) is turning up, but cumulative moneyflow (bottom pane) is not. Sentiment is bearish for gold, but not quite in the “too bearish” zones on most of the sentiment studies that I look at on sentimentrader.com.
Given the above, any move on gold might be short and shallow. Target is $1160 – $1200 – which is the zone that lies between a gap-down point ($1160) and an old support point ($1200-ish) on the chart. Recall that old support becomes new resistance, should gold get that high.
Of note, I won’t be trading this one – there isn’t enough upside for me to step into the trade, despite a reasonable probability of some neartermed success.
Keith on BNN
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Keith: I agree with your comment that you will not trade this as there is not enough room. What I get from your analysis is that while there may be a short term jump, there is still much pressure to the downside mid to long term. Why is the long term downwards? Is it Trumps infrastructure spending and the anticipation the market mid term is positive and into a bull market still?
Gold rises or falls with the USD to some extent–gold will likely be weak as the USD rises via interest rates climbing while taxes are lowered (good for consumer spending, and corporate reinvestment). Plus–there is a macro cycle for commodities in general that should continue pushing gold, oil and other major commodities lower over several years. I’ve mentioned this numerous times on the blog, for example here.
Keith: A 2nd comment topic this week. Hap Sneddon states “shows a bearish setup for crude oil”. What is your perspective on oil over the coming weeks and say over a 6 month horizon? I recall you believe overall 2017 that oil will hit $60, but perhaps there is a correction before that target is achieved.
Appreciated and best for a successful new year.
Daddyo–I don’t agree that oil is set for any type of major bear move in the next few months. There is a seasonal tendency for energy/oil to sell off a bit into February so it could very well settle back into low-$50 area nearterm. But thereafter I’d expect both seasonals–which are positive from March and on– AND a potential (but incomplete at this time) head and shoulders bottom breakout would push the price of oil into the $60’s by the summer.
Do you share the same assessment for Silver and related equities ie SLW.To? I know seasonality tends to be very strong for silver in Jan/February, but I also know there are relatively strong correlations between Gold and silver.
Thanks for your thoughts,
Yes they are somewhat correlated–silver has similar seasonal strength into February according to equityclock.
Apologies – I meant Keith, not Richard
“Not a problem”, as is said!
Good call on gold Keith … your view is always appreciated.
I’m wondering if you used any other areas of resistance for $GOLD to arrive at your stated 1200 resistance, other than the 2 most recent bottoms 1) end of March 2016 and 2) Jun 2016?
Do you pay any heed to previous congestion at end of 2014/2015 or other factors in order to support that thesis, or just the last 2 clear bottoms?
Thanks in advance.
The $1200 is old support-to your point—there are lots of points of resistance on any chart but I look for maximum “tests” of a price point. The more tests the better. BTW–my target is closer to $1225 actually, but I’m inclined to round things off and not get to uptight about precision in target estimations