Let’s revisit our thesis, and the reasons why we believe gold will bullish in 2018, not bearish.
Changing intermarket dynamics in 2018
Very important to note: as our research team has shown in this Safe Haven Forecast 2018: Correlation Between Gold And The Japanese Yen something very odd is happening right now: the traditional correlation between the Yen and gold is breaking up, after it has held many years. Either the Yen or gold is ‘cheating’, the challenge of our analyst team is to understand what exactly is going on. We believe that all charts in this article suggest a bullish outcome for gold.
Gold price chart
First of all, the most critical price point on the gold chart is $1250. As gold was moving below $1250 in December we were convinced it was signaling weakness, and the continuation of the downtrend or, at best, a sideways pattern.
However, gold stopped falling at $1230. That was a first red flag going against our forecast.
With that, gold’s price chart starts looking constructive. Note how it is today breaking out of its falling 7-year bear market trend. Note also this series of higher lows. This is not yet the real deal though, as said in our 2018 forecast a real bull market starts once gold crosess the $1350 to $1370 area. This is what we wrote:
The possibility of gold to break out into a new secular uptrend in 2018 seems to be unlikely, at least according to us. The only thing we say about this: once the price of gold goes above $1375, and trades there for at least 3 consecutive weeks, we could be looking at a breakout scenario. In that case $1550 would be a price target.
As gold is now moving to test the $1350 area it is key to watch if and how long it will be able to trade above $1350.
Not only is the chart setup looking stronger it is also the commodity trade that underpins a bullish outcome for gold. We wrote a bullish copper price forecast for 2018, bullish uranium forecast for 2018, and several other commodities are moving stronger than we expected.
As an analyst it is perfectly fine, and even a best practice, to constantly revisit your thesis, and adjust where and when needed. That is why we increase the odds of a bullish outcome in the gold market in 2018.
Gold futures chart
The second must-see gold chart is the COT futures positions. It is not a timing indicator nor a price forecast tool. The COT gives you a good view on the ongoing bigger picture trend. Note this ‘rule’ only applies to precious metals.
As shown by the yellow circles there is a series of higher lows in the gold price which is associated with similar net short positions of commercials. This suggests that commercials are not able to push the gold price lower, even if they try hard.
Moreover, and this is surprising to us, recent attempts to push the price lower failed. We were expecting to see a mini-crash in December, with ultra low short positions by commercials. The opposite is happening. This is a bullish sign, without any doubt, and another reason we have to revisit our initial 2018 forecast.
Gold miners chart
The gold mining chart GDX (GDX) shows strength by refusing to go lower. Support seems very strong in the 21 point area. Even in December, traditionally a weak month, we have not seen any significant weakness.
Silver miners chart
Probably the most important precious metals chart to us is the silver mining chart, SIL ETF, shown below. We consider this the leading indicator for the precious metals market.
The area at 29 points was a very important support level one year ago in December. It held strong last month, and this is the single most important chart in the precious metals space right now. Moreover, apart from this critical support level, we also see trading volume picking up, after an 18 month decline.
This silver mining chart is for us the ultimate confirmation of strength in the gold and silver market!
U.S. dollar index
Last but not least, the U.S. dollar index really looks weak. We had expected a continuation of the recent rally. However, as the impact of Yields on the U.S. dollar is fading we believe there is a new intermarket dynamic trend. We cannot ignore this, and, again, it makes us aware that we have to revisit our initial gold price forecast.