While it is likely that we are not done on the downside just yet, the drop to the neutral 50 level or just below is almost complete…
Two weeks ago, I wrote this with respect to the weekly chart on Gold:
Although the RSI has fallen back to 63, I would prefer to see some further retracement to better set us up for the next rally. This is especially true when we’re coming off the highest weekly RSI reading since the extreme peak in August 2011.
While it is likely that we are not done on the downside just yet, the drop to the neutral 50 level or just below is almost complete. The rally to new highs in Gold and Silver is just around the corner. We’ll deal with what happens next once we get there.
The daily chart for Gold suggests the low will be in the low 1420s, with risk down to 1340-1360 on a “worst-case” basis in the short-term. This sets us up for a rally to new highs > 1566.
My primary target in Silver is 16.50 at a minimum, with risk down to as much as 15 on a worst-case basis, before we head north of $20.
We are currently getting a dead cat bounce in both metals from the lows on Tuesday. Gold has already hit my minimum target of 1473, but it could reach as high as 1495 before heading down to either a positively divergent lower low between or an extreme oversold position.
Silver could reach as high as 17.30-40 before heading down to 16.50 or below. As in Gold, I’ll be looking for a positive divergence at the bottom or an extreme oversold condition.
Gold, Silver, and the 10-Year Yield have been near-perfectly correlated on an inverse basis for some time now. As I shared last week, the 10-Year Yield hit my minimum target for wave C = A of 1.98% and has turned down to 1.81% already. Yet I still don’t rule out the possibility of a move up to 2.28% (or somewhere in between 1.98-2.28%) before yields peak, even though it is looking increasingly likely that the peak yield is in place. The current situation suggests we have seen the lows in Gold and Silver, but I am not convinced of that just yet. All that said, bonds do signal the lows in the metals are close.
The miners lagged Gold on the upside before Gold peaked on September 4. GDX had peaked relative to Gold more than a month earlier. This is interesting, because we are seeing the opposite playing out now too. The miners are lagging the metal on the downside. Gold continues to fall, but GDX has bottomed relative to Gold over a month ago. This is yet another sign that the bottom is in or close in both.
At the risk of repeating myself, there could be further downside in both the metals and the miners, but it is likely to be limited from here. In fact, the lows may already be in place for both (although I still think we have a little further to go). I don’t recommend trying to pick up pennies in front of a steamroller. By contrast, once we do hit bottom, what follows is a rally to new highs across the complex. That said, wait for the turn up. There’s plenty of upside thereafter.
I am just sharing what I am seeing, but it certainly looks promising from here.