With all the geo-political challenges going on including the US walking away from the Iran deal, one would think gold' would rally but instead it continues to slide. Part of this is due to the strength of the dollar, and the other is simply lack of physical demand.
The first quarter saw the lowest demand for physical gold' since 2008. We have been mentioning for a couple months that there is a glut of physical coins and bars that have come into the market over the past year. This has resulted in spreads between physical and spot being at all time lows, and in some cases at or below melt. Paper is the only thing holding prices up at this point. One point of evidence is the gold' to silver' ratio which is near all time highs.
Gold' is currently trading near the 1305 support line. If the 1305 support level fails, gold' will likely selloff and retest the longer term trend channel. This is in correlation with the 1250-1285 levels posted prior which are the 0.618 retrace of wave (i) and the 0.5 retrace of wave (1). The 0.382 retrace of wave 1 is found within the zone at 1275 and a level to look for a bullish reversal signal.
Failure of 1250 to provide support would be a significant sign of weakness, bringing into play a retest of the psychological 1200 level or possibly lower. At this phase of the market cycle I do not personally believe we go this low, but IF we do, it may simply be the last chance to buy at 1200 and would be a market gift. A break of 1237 negates the EW count shown.
The level to break for a rally is still 1365. Though we have tested it several times in the past two years, it has yet to be broken. This summer I believe gold' breaks through the 1365 level and rallies towards the 1450, but first, the powers that be, must shake out the weaker hands. Currently all eyes are focused on Iran, North Korea, and the China trade deal. With gold' settling to the lower end of the horizontal channel it is likely we see a China trade deal soon, revitalizing a rally in stocks toward our 3000 S&P' target and putting additional selling pressure on metals in general.
What’s off the radar of many is the US midterm election this summer. With all three branches of the government currently controlled by Republicans, a change in power, in any branch, will result in uncertainty, and the markets do not like uncertainty. Uncertainty could be a catalysts for a change in sentiment that pushes gold higher as investors transition to risk off equities. This will depend on how “news” covers the election, but seeing how the last one was covered, I can not imagine it will be any different. The typical fear mongering on both sides can be expected which is simply good for gold.
Summary:
With the gold' / silver' ratio trading above 80 I still like silver' over gold' here. With spreads being at decade lows it provides an opportunity to stack silver' until the ratio reverses at which point one can convert to gold'.
The first quarter saw the lowest demand for physical gold' since 2008. We have been mentioning for a couple months that there is a glut of physical coins and bars that have come into the market over the past year. This has resulted in spreads between physical and spot being at all time lows, and in some cases at or below melt. Paper is the only thing holding prices up at this point. One point of evidence is the gold' to silver' ratio which is near all time highs.
Gold' is currently trading near the 1305 support line. If the 1305 support level fails, gold' will likely selloff and retest the longer term trend channel. This is in correlation with the 1250-1285 levels posted prior which are the 0.618 retrace of wave (i) and the 0.5 retrace of wave (1). The 0.382 retrace of wave 1 is found within the zone at 1275 and a level to look for a bullish reversal signal.
Failure of 1250 to provide support would be a significant sign of weakness, bringing into play a retest of the psychological 1200 level or possibly lower. At this phase of the market cycle I do not personally believe we go this low, but IF we do, it may simply be the last chance to buy at 1200 and would be a market gift. A break of 1237 negates the EW count shown.
The level to break for a rally is still 1365. Though we have tested it several times in the past two years, it has yet to be broken. This summer I believe gold' breaks through the 1365 level and rallies towards the 1450, but first, the powers that be, must shake out the weaker hands. Currently all eyes are focused on Iran, North Korea, and the China trade deal. With gold' settling to the lower end of the horizontal channel it is likely we see a China trade deal soon, revitalizing a rally in stocks toward our 3000 S&P' target and putting additional selling pressure on metals in general.
What’s off the radar of many is the US midterm election this summer. With all three branches of the government currently controlled by Republicans, a change in power, in any branch, will result in uncertainty, and the markets do not like uncertainty. Uncertainty could be a catalysts for a change in sentiment that pushes gold higher as investors transition to risk off equities. This will depend on how “news” covers the election, but seeing how the last one was covered, I can not imagine it will be any different. The typical fear mongering on both sides can be expected which is simply good for gold.
Summary:
With the gold' / silver' ratio trading above 80 I still like silver' over gold' here. With spreads being at decade lows it provides an opportunity to stack silver' until the ratio reverses at which point one can convert to gold'.
