In this article, we feature 4 gold related charts. Two of them are bullish and two are bearish.
The first bullish chart is the gold price with its trend channel since it peaked in 2011. So far, the breakout out of the trend channel is strongly bullish. What gold bulls would like to see now is a successful test of 1200 USD (resistance line). With gold trading only 20 USD above that price point, it will not take long to see the results of that test.
The second bullish chart is the correlation between inflation expectations (TIPS) and the price of gold. In the last 1.5 years, inflation expectations have been falling. As soon as the Fed started talking about negative interest rates, inflation expectations started rising, and confirmed gold’s rise.
The most annoying bearish chart is the correlation between gold and silver. As the next chart shows, silver is not leading gold higher. Silver is known to be a leader in the precious metals complex. As silver has only marginally moved higher, and, especially in the last couple of days, has fallen stronger than gold, it is not signaling strength across the precious metals complex. This is not constructive. The downside of gold’s strong rise was that it was driven by increased volatility in crude oil, and, related to that, stock markets. So watch gold’s behavior as crude and stocks stabilize.
The second bearish chart is the position of traders in the COMEX futures market. As seen on the lower pane of the next chart (blue bars), short positions of commercial traders is reaching levels only exceptionally seen in the last 3 years. Those readings have always coincided with tops of a rally. The most annoying observation here is that the rate of change of commercial short positions has been very high in the last weeks, which is in our own words the ‘stopping power’ of a rally. Note, however, that COMEX is not a good timing indicator. It should always be read in the context of other indicators.
There are mixed signals in the precious metals complex. We are somehow concerned that the recent rally was a reaction on volatility and fear, especially has crude has collapsed. We have shown that a collapse in crude has always come with fear in stock markets, as evidenced by the correlation of both assets (read this article). The two important elements to watch, going forward, are (1) monetary decisions, in particular interest rates (2) gold’s reaction on stabilizing crude and stock prices.