Gold Has Not Been This ‘Oversold’ Since December 2016 (And The Selling Is Probably Not Over Yet)

SD Midweek: Gold may be screaming “oversold”, but the pressure is on as the situation has deteriorated since Monday. Here’s the details…

I have been looking for slightly higher gold prices this week, with the possibility of a “relief rally”.

I was not expecting gold to perform on Monday and Tuesday like it did.

That said, I acknowledged the possibility of going lower, as I did not count out continued pressure being applied to gold considering the bearish momentum that would surely grip the yellow metal after the infamous “death cross”.

We can see the death cross is really taking shape now:

Still, I was expecting a reprieve this week more than I was a smashing.

But here we are, so like they say in the Army, we’ll just have to “adjust fire”.

The reason why I didn’t expect gold to perform like this was simple: Gold would be screaming “oversold”.

In fact, on Monday in the SD Outlook, with regards to pressure being applied to gold, I said (bold added for emphasis):

Now, I am looking for sideways to slightly higher in gold this week, with a possible relief rally, but the cartel can work off the death cross momentum and just give us a continuation of the smashings.

The only problem with that scenario is that gold has already been “oversold” and if the cartel goes down that path, gold will really be oversold.

Regardless, the low trading volume in gold says the cartel is eatin’ at Burger King this week and they’re gonna have it their way.

So here we are on Wednesday morning, and gold is really oversold.

Here’s what really “oversold” looks like on gold’s daily chart:

Do I think the worst is behind us as far as downside price action?

No.

I do not.

Do I think gold will continue to become even more oversold?

Yes I do.

As far as continued downward price action is concerned, I think there is a very fundamentally strong case for the cartel strong-arming the “market” next week.

Could they just be playing mind games this week and skimming profits along the way?

I certainly think they could be.

We’ll have to see how gold finishes the week to find out if they’re toying with us, but for now, it’s just the old saying “the beatings will continue until morale improves”.

Question: Just how bad can the cartel crush sentiment?

Isn’t sentiment already as bad as it can be right about now?

Note to cartel: If you wanna really kill sentiment then come in next week and smash gold below $1200.

Interestingly, the cartel has been unable to keep silver below the sideways channel of pure agony:

Th broad range is $16.20 to $16.80.

Every time we dip below $16.20, we either spring back up immediately, or the very next day.

At least that’s been the way its worked out for the last several months.

Zooming in on the time-frame, we see just how painful the last several trading days have been:

Two words: Monkey hammering.

Gold has been the worst performer.

I think the cartel is able to work gold in this manner because of mining costs of mining gold vs that of silver.

It appears there is a little more give in the gold price than there is in the silver price.

So we have a yellow metal that has been successfully worked lower, and a white metal that is range-bound only.

This shows up on the gold to silver ratio:

The ratio is falling for the wrong reasons – the downside price action in gold is more severe than the downside price action in silver.

That said, I am not looking for a trip back up into the mid-80s.

Why?

That is a clear rolling top, and once the rally begins in earnest, silver will step up in its role of naturally outperforming gold.

I talked about palladium being range-bound, yet I haven’t drawn a channel until now:

If that is indeed the correct range, we would be looking for a trip back up to $1040.

However, if gold and silver are going to keep falling through next week, as I forecast they are, then the likely scenario is that palladium dips below the channel, as it has done in the recent past.

If platinum turns down here, we’re talking about the 8th series of lower-highs and lower-lows:

That is a serious beaish trend in platinum.

And it never really screams “oversold” like gold is screaming right now, but rather, platinum has just been scraping along the bottom on the Relative Strength Index (RSI).

Copper is no longer treading water:

We’ve now fallen below the psychological support level of whole number support at $3.

Just like with the precious metals, we’ll just have to see how the week pans out.

Crude oil has shot-up over $70 the last two days:

Crude oil is above $71 today in the pre-market.

I have been expecting crude to straddle the 50-day moving average, and it is playing out as I expected, however, I am looking for price to smooth out and not jump around so erratically.

There are major geo-political factors driving crude oil right now including sanctions affecting Iran and Venezuela, collapsing crude oil production in Venezuela, and general production agreements between OPEC members that are unclear at best.

So add all the fundamental factors up, and add in some technical data dumps, which the next one comes at 10:30 a.m. EST today with the EIA Petroleum Status Report, and we have some volatility in crude.

But here’s the point I want to make clear: So far the price of crude has been “climbing a wall of worry”.

Many analysts still do not buy into the notion that crude is going higher, but here we are again above $71 and yet again within spitting distance of multi-year highs.

For people who don’t have a direct stake in the oil and gas industry, these higher crude oil prices are making the presence of inflation really felt.

Felt in the consumer’s wallet.

And as a reminder, the price of crude oil is a major cost in the mining/production of gold & silver.

When input costs rise, the end price has to rise.

Are traders starting to think that small cap American companies aren’t doing as well as the price levels given to them?

I’ve been looking for a drop in the Russell 2000, and it appears the drop is starting:

We’ll have to see if this is the start of a meaningful drop, or just another dip.

Looking at it slightly different: The Dow Jones is red year to date, the Dow transportation average is red year to date, the banks are taking a beating, the S&P 500 is about to be red year to date, yet small cap American companies are just rocking and rolling?

Or is it that the Russell 2000 is way over-valued and ready to come crashing down?

And remember, these are “small caps”, meaning they are not the big “multi-nationals” that are repatriating all of this money from abroad.

So we’ll see.

I still think the Russell 2000 is way over its skis here.

The yield on the 10-Year Note appears to be fading:

Yield has been fading for a month-and-a-half now.

Granted, before the most recent bottom on September 7th, the yield was fading for nine months.

Here’s the point I want to make about that – but first, a preface –

Everybody, meaning the mainstream financial propagandists, press, investors, traders and the like, are brainwashed into thinking rising rates are bad for gold.

They’re not, in part because rising rates are indicative of inflation, and gold is an inflation hedge, and in part because rising rates are a loss of confidence vote on the sovereigns, and when people lose some confidence, well, said differently, gold is a hedge against uncertainty.

There’s lots of reasons why rising rates are good for gold, but that’s not my point.

My point today is about falling (fading) rates.

Assuming bond yields are fading here, that would be good for gold, and as we saw last year, gold was rising until when?

Yup –  September 7th, 2017 when we started the brutal smashing pressure that lasted all the way until mid-December.

September 7th, 2017 is also the day the yield on the 10-year stopped falling.

See how that works.

Yet another sign of manipulated, price suppressed markets. You have rates that have faded for the lat month and a half, yet the price of gold and silver are down.

Regardless, if those fading yields start falling even more, that will help put a floor on the price of the metals.

That said, I think we have another week-and-a-half to go before the rally begins.

On Monday I drew an up-arrow on the VIX.

It looks like I was right about the direction of the VIX:

If the VIX keeps rising or even starts spiking from here, watch those stock market indexes.

Finally, the dollar is consolidating in a range right now:

Call that range 94 to 95 on the Dollar Index (DXY).

Interestingly, the last time the dollar was bouncing around 94 to 95, the dollar made a “head-n-shoulders” chart formation, and we know that meant that if the formation held, the dollar was going lower.

I haven’t started signaling a head-n-shoulders formation yet, but just notice that there is potentially a left-side shoulder and a head on the chart.

If that is the case, the pattern looks tighter this time around, which means, again, assuming the pattern holds, that we’re not looking for months for the pattern to complete, but weeks.

Granted, if the dollar closes above 95.125, then forget about a head-n-shoulders pattern, because what we will be looking at is a series of two higher-lows with now a third higher-high.

In all actuality, the latter scenario makes more sense, especially if the cartel is going to smash gold and silver over the next week and a half.

Because a rising dollar, in part, provides cover for smashing.

So get ready for it.

Might want to start looking for the keys to that truck.

Because its about time to back it up.

Stack accordingly…

– Half Dollar


 

About the Author

U.S. Army Iraq War Combat Veteran Paul “Half Dollar” Eberhart has an AS in Information Systems and Security from Western Technical College and a BA in Spanish from The University of North Carolina at Chapel Hill. Paul dived into gold & silver in 2009 as a natural progression from the prepper community. He is self-studied in the field of economics, an active amateur trader, and a Silver Bug at heart.

Paul’s free book Gold & Silver 2.0: Tales from the Crypto can be found in the usual places like Amazon, Apple iBooks & Google Play, or online at PaulEberhart.com. Paul’s Twitter is @Paul_Eberhart.

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