Gold, Commodity And Stock Markets Are At A Critical Juncture

The Market Oracle ^ | 1-31-2010 | Clive Maund

[blam]

Gold, Commodity And Stock Markets Are At A Critical Juncture

Commodities / Gold and Silver 2010
Jan 31, 2010 - 02:32 PM
By: Clive Maund

In this Gold Market update we are going to "cast our net wide" and consider the outlook not just for gold and PM stocks but also the dollar, other commodities and the the broad US stockmarket. The reason for this is that COMMODITY AND STOCKMARKETS ARE AT A CRITICAL JUNCTURE AND MUST REVERSE TO THE UPSIDE IMMEDIATELY to avert the risk of a catastrophic decline, similar to 2008 or even worse. The severe deterioration last week, which included a sharp breakdown by copper and PM stock indices starting to break down, and also the erosion of critical support in commodity and stockmarkets generally, has greatly increased downside risk. Should these markets accelerate into freefall, it will mean that the specter of deflation has come back to haunt the markets.

We will start with a look at gold. On its 1-year chart we can see that it is in a potential Descending Triangle pattern, and actually did quite well last week to hold up above the support at the bottom of it, considering the sharp breakdown in copper and the strength in the dollar. If it is a genuine Descending Triangle, then it will go on to break lower, although there is some chance that the pattern is instead a large bullish Pennant. A break below the support at the bottom of the Triangle would be expected to lead to an immediate drop to the next support level in the $1010 - $1030 area, which is a particularly strong zone of support as it runs along the top of the large 20-month consolidation pattern that led up to the advance late last year, that could put a floor under gold and turn it up again. However, should this support later fail it would be a very bearish development for the intermediate-term that would be expected to lead to further heavy losses. One possibility here that is suggested by the deeply oversold condition of other commodities/stock indices, is an immediate weak rally back up to the red descending trendline that could then be followed by breakdown.

It is bad news for gold that PM stocks appear to be breaking down from their uptrend that was in force all this year, as is plain on our 16-month chart for the HUI index - even being generous in the positioning of our lower trendline it is clear that it is breaking down - IT MUST REVERSE TO THE UPSIDE IMMEDIATELY TO AVERT THE RISK OF A PRECIPITOUS DECLINE AND A BREAK LOWER BY GOLD (AND SILVER).

[snip]

[JustTheTruth]

Short term gold trading is, in my view, always a crap shoot. It is an insiders game, and outsiders generally tend to lose to the "House."

Long-term, gold fundamentals still look good because the dollar is purposefully but surrepticiously being devalued.

Fasten your seat belt for the short term, and look to the long term. Gold will be around long after the dollar is gone.

[Frantzie]

People should read the whole article. The chickens are coming home to roost. Gold & precious metals may hold up better than the market which does not look good.

[Sparticus]

I was all set to buy some hedge-investment silver. This month’s money is going into canned goods instead.

[blam]

"I was all set to buy some hedge-investment silver. This month’s money is going into canned goods instead."

Good choice.

[eyedigress]

The outsiders need to sell.