Gold

[PCMNewsdesk]

[Gold]'s spike to $1358.74 on Friday led to a more subdued day today. As we noted in the STU, the spike carried prices to the apex of the previous wave (4) triangle, which is common resistance in a countertrend push. The short term waves allow for another upward push in the coming day or so, which, if it occurs, would lead to a more sizeable pullback. The Large Speculators, now conjoined by the Commercials, hold a record number of futures and options contracts in gold. The Large Specs are record net-long in the total number of contracts purchased while the Commercials are record net-short. The Large Specs are mainly comprised of hedge funds, who are trend-followers. Since this cohort most often gets caught on the wrong side of a trend reversal, when their position size becomes extreme, the odds of a trend change become elevated. When the position is offset by a record net-short by the Commercials (insiders), as it is now, the caution flags wave red and black. The fact that the Large Specs hold a larger position size now than when gold was $600 higher at $1921.50 in September 2011—after just a 36% retracement of the decline from the 2011 peak—confirms that the current advance from December is a bear-market rally. Short term, if gold pushes to a new high this week, the next resistance range is $1380-$1400.

[PCMNewsdesk]

[Gold]'s high so far remains at $1358.74 from last Friday. The COT data that we discussed remains lopsidedly bearish but that does not preclude a further short term rally. It does indicate that gold's entire advance from the December low is a bear market rally. If gold carries above last Friday's high, the next resistance range is $1380-$1400.

[PCMNewsdesk]

The market is closed on Monday, July 4, in celebration of the Independence Day holiday. The next STU will be published on Wednesday, July 6.

[Gold] has so far failed to confirm silver's jump, instead remaining below the $1358.74 from last Friday (Jun. 24). But the short term waves appear to be developing as if gold will soon push above the late-June high. Our chart tonight shows several possible stopping points for gold's bear-market advance. At $1381, gold will have retraced a Fibonacci .382 of Primary wave A (circle). At $1434, gold will have reached the price extreme within Intermediate wave (4). At $1480-$1500, gold will have retraced .50 of Primary wave A (circle) and carried to wave four of Intermediate wave (3), one of the common targets we see in a countertrend rally. All of these levels and ranges are legitimate marks and if gold reaches any or all, we will assess the short term waves and the attending technical condition of the push to determine if Primary wave B (circle) is at its terminus.

[PCMNewsdesk]

[Gold] carried to $1375.53 today, just shy of retracing a Fibonacci .382 ($1381) of Primary wave A (circle) down. Prices may reach this retracement and possibly carry to one of the other ranges that we’ve cited: $1434-$1437 and $1480-$1500. The sentiment extreme that we discussed in detail in EWFF remains in place. Last week’s COT data shows that the total number of net-long gold futures and options contracts expanded to a new record for the Large Specs as well as a new record net-short for the Commercials. This does not preclude gold from reaching one or more of the aforementioned target areas, but it does confirm that gold’s advance is part of a bear-market rally and not the start of a new bull market. A close below $1300 would indicate that the rally had exhausted.

[PCMNewsdesk]

[Gold] pushed to $1376.01 Wednesday night and has closed lower for the past two days. The Daily Sentiment Index rose to 83% Wednesday night in conjunction with the high. This may not seem as extreme as the numbers that are currently being generated in silver and bonds, but the Commitment of Traders data is unequivocally bearish, as we discussed in EWFF. Gold has carried to within ticks of retracing a Fibonacci .382 of Primary wave A (circle) and the rally that started last December ($1046.20) has traced out three waves. So gold has satisfied the minimum requirements for Primary wave B (circle). If prices were to continue to advance, the next potential stopping areas remain $1434-$1437 and $1480-$1500, as shown on the chart. A close below $1300 would suggest strongly that gold’s rally had exhausted, raising the odds that Primary wave B (circle) is complete.

[PCMNewsdesk]

[Gold] has traded sideways the past three days, while traders continue to scratch their speculative itch by loading up on gold futures and options contracts to a degree that has never been seen. As shown on the chart, just seven months ago, with gold down 46% from its September 2011 peak, Managed Money accounts were record net short gold futures and options contracts, betting that gold prices would continue to decline from their $1046.20 level in late December. This sentiment extreme was a perfect accompaniment to a complete five-wave decline from 2011 to 2015 and the start of a strong gold rally. Prices have now retraced 38% of that decline and Managed Money accounts are now record net long, betting that gold prices will continue to rally from its recent $1375.53 high (Jul.6), basis spot prices. As we noted last week, gold has satisfied are minimum expectations for Primary wave B (circle), the rally that started last December. If the current advance was to continue to the next stopping range, gold would rise to $1434-$1437 or $1480-$1500. But it is a high risk time if one is a gold bull, because prices are vulnerable for a significant reversal. A close below $1300, particularly if this selloff traces out five waves, would indicate that a larger and longer gold decline is underway.

[PCMNewsdesk]

[Gold]’s rally remains over-bought and over-believed, a dangerous combination for the bullish case. The high for the advance so far is $1375.53 (Jul.6), basis spot prices. Primary wave B (circle) sports a three-wave structure and has retraced 38% of Primary wave A (circle), thereby satisfying our minimum expectations. The two higher stopping ranges that we’ve discussed—$1434-$1437 and $1480-$1500— could be met prior to the end of Primary wave B (circle), but they don’t have to. If they are, prices will probably spike to the final high, which is common behavior for the end of rallies in precious metals. A close under $1300 would put a dent in any remaining bullish potential. When the Large Specs and the Managed Money accounts start to liquidate their long futures and options contracts, gold’s decline could turn very steep.

[PCMNewsdesk]

We’ve been publishing this weekly [Gold] chart of late because it best shows the overall wave structure since the September 2011 peak. The rally that started at the $1046.20 low on December 3, which is the Primary wave A (circle) low, has traced out a clear three waves. The high for the advance so far remains at $1375.53 (Jul.6), basis spot prices, which is a 38% retracement of Primary A (circle). Primary wave B (circle) does not have to carry any higher but we also cannot eliminate that possibility just yet. As we’ve noted, if the rally continues, two potential higher stopping areas are $1434-$1437 and $1480-$1500, as shown on the chart. A close under $1300, confirmed by a silver close below $19.21, would weaken any remaining bullish potential. A break of the wave (B) low would eliminate it. Once gold speculators start reversing their over-committed net-long futures and options positions, gold prices could decline significantly.

[PCMNewsdesk]

After five weeks in a row of increasing their net long [Gold] futures and options positions to an all-time record, the Large Speculators wobbled a bit last week. As the chart shows, the Large Specs slightly decreased their net longs, while the Commercials, which take the opposite side of the trade from the Large Specs, slightly decreased their net shorts. This particular sentiment measure remains resolutely bearish for gold prices. The rally high so far remains at $1375.53 on July 6. Primary wave B (circle) has retraced a Fibonacci 38% of wave A (circle) and it is possible to label gold’s countertrend advance as complete. If the rally were to extend beyond the July 6 high—it remains a possibility; silver still has not confirmed gold’s recent slide by remaining above $19.21—the two most probable stopping areas for the extension are $1434-$1437 and $1480-$1500. The latter range includes wave four of (3), which is often a strong target. Regardless of whether gold reaches these ranges, the three-wave pattern of the advance from December as well as the COT extreme confirms that the push is a bear market rally. As noted Friday, a close under $1300, confirmed by a silver close below $19.21, would weaken any remaining rally potential. A break of the wave (B) low ($1200) would confirm the onset of the next wave down.