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Gold Investment Updates are weekly gold investment newsletter provided by Przemyslaw Radomski, CFA. They are based on the flagship Gold & Silver Trading Alerts that focus on all the key factors that govern long- and medium-term outlooks for gold, silver, and mining stocks. These comprehensive reports (usually size of a small ebook) ensure that you’re kept up-to-date on important developments that 99%+ of investors are likely to miss.

  • Gold Investment Update - The Powerful 2008 Lessons That Apply to Gold Today

    March 30, 2020, 11:57 AM

    Mark Twain said that history does not repeat itself, but it rhymes. It's certainly true in both life and financial markets. Let's explore how the recent history lessons apply to the precious metals.

    The 2008 - Now Link

    Let's recount the similarities. We already had gold reversing on huge volume, and we saw it decline very strongly in the first week after the top. We already had another attempt to break above that high and we saw it fail. We also saw rhodium at about $10,000. We already saw silver and miners plunging much more severely than gold did. In fact, silver just plunged almost exactly as it did in 2008 during the analogous part of the slide.

    All these factors make the current situation similar to how it was in 2008, at the beginning of one of the biggest declines in the precious metals sector of the past decades.

    But the very specific confirmation came from the link between gold and the stock market. Stocks plunged along with gold, silver, and mining stocks. That's exactly what was taking place in 2008. The drop in 2008 was very sharp, and silver and miners were hit particularly hard. We expect this to be the case this time as well.

    In 2008, the temporary rallies were particularly visible in case of gold, not that much in case of silver, mining stocks, or the general stock market. Gold declined particularly hard only after the USD Index started its powerful rally.

    The 2008 decline in the PMs ended only after a substantial (about 20%) rally in the USD Index.

    The USDX has just corrected almost 61.8% of its previous decline, and it could be the case that it's now ready to soar much higher. Last week, we wrote that the USD Index could correct based on the 2T stimulus and other monetary, and fiscal steps taken by the US officials.

    That's exactly what happened. Yet, it's not likely that these steps will prevent people from raising cash when their fear reaches extreme levels. We're getting there. And we're getting there fast.

    As the situation is more severe, the USD Index might rally even more than 20%, and the 120 level in the USD Index (comeback to the 2001 high) has become a quite likely scenario.

    Let's keep in mind that it was not only the 2008 drop that was sharp - it was also the case with the post-bottom rebound, so if there ever was a time, when one needed to stay alert and updated on how things are developing in the precious metals market - it's right now.

    Last week we supplemented the above with description of the 2008 analogy in terms of the shape of the price moves. On Wednesday, we supplemented it with a more detailed time analysis. It's very important today (and for the rest of the week), so we're quoting our Wednesday's comments:

    It took 9 trading days for gold to decline from its top to the final intraday bottom, before starting the powerful comeback.

    In 2008, it took 41 days. It seems that things are developing about 4.5 times faster now, than they were developing in 2008. More precisely: 41/9 = 4.56 times.

    Please note that the decline that preceded the sharp upswing in gold, is also somewhat similar to what we saw recently. There was an initial slide in gold that ended in mid-August 2008, then we saw a correction and then another slide and a bottom in early September. This year, we saw an initial bottom in mid-March, and the final one a few days ago.

    Back in 2008, it took 23 trading days for gold to reach its initial bottom and it then took another 18 days for the final short-term bottom to form. 56.1% of the downswing was to the initial bottom, and the 43.9% of the downswing was between the initial and final bottom.

    And now? It took 5 out of 9 trading days for gold to reach the initial bottom, and the remaining 4 days were the time between the bottoms. That's 55.6% and 44.4% respectively.

    This is very important, because it shows that the shape of the move is indeed very similar now.

    This means that we can most likely draw meaningful conclusions for the current situation based on how the situation developed back in 2008.

    Back then, gold moved back and forth close to the initial top. That's what gold has been doing so far today - which serves as another confirmation for the analogy.

    Back in 2008, gold topped over the period of 16 trading days. Dividing this by 4.56 provides us with 3.5 days as the target for the end of the topping pattern since its start. The pattern started yesterday, which suggests that gold could top tomorrow [Thursday, March 26th] or on Friday.

    EDIT: That's exactly what happened - in terms of the daily closing prices, gold has indeed topped on Thursday.

    The situation gets more interesting as we dig in more thoroughly...

    There are 24 hours in a day. Dividing this by the factor of 4.56 provides us with 5.26. This means that if we could create a chart with 5.26 hour candlesticks, the price moves in gold should be analogous (in terms of how we see them on the chart) to their daily performance from 2008. The closest that we have available are the 4-hour candlesticks.

    Let's check how gold performed recently from this perspective, and compare it to its daily performance from 2008.

    The price moves are remarkably similar.

    Even the March 17, 2020 upswing took gold to analogous price level! Gold temporarily topped very close to the previous (Feb 28) low. That's in perfect analogy to how high gold corrected in late August 2008 - it moved up to the early May 2008 high.

    The link to 2008 truly is the key right now.

    Ok, so when are silver and miners likely to top?

    Sooner than gold.

    Please note that both: silver and mining stocks topped more or less in the middle of gold's topping formation... Which suggests that they should be topping today.

    And for the final confirmation - please take a look at what the stock market and the USD Index have been doing at that time. The USD Index was within a pullback while the stock market formed a very short-term upswing. Silver and miners topped along with the stock market.

    Silver just moved to its previous short-term high (a small high, but the one that preceded the final part of the decline) and it's approximately at its 38.2% Fibonacci retracement.

    That's exactly where silver topped in 2008. Back then the analogous high was the late-August high, and it also topped close to its 38.2% Fibonacci retracement.

    We are probably looking at a top in silver right now.

    This means that miners are likely to top today as well.

    EDIT: That's exactly what happened in terms of the daily closing prices. Both: silver and GDX formed the highest daily closing prices on Wednesday - the same day we had published the above.

    Please keep in mind that after the 2008 bottom in stocks, it took only two days before they formed an intraday top. Given that this time, the price moves are more volatile, it seems that we could (far from certain) see a powerful reversal (top) as early as tomorrow. This estimate is in perfect tune with the triangle-vertex-based reversal that we see on the GDX and GDXJ charts.

    EDIT: Again, that's exactly what happened. The GDX index formed the intraday high on Thursday, one day after we wrote the above. The GDXJ formed the intraday high on Wednesday.

    How much clearer could it get that the precious metals market is re-creating its 2008 slide?

    Ok, so what does it tell us going forward?

    It tells us that the precious metals market is likely going to slide very profoundly, and very quickly. And it might happen as early as this, or the next week.

    Thank you for reading today's free analysis. If you'd like to supplement the above with details regarding the details of our current trading positions (and the upcoming ones), we encourage you to subscribe to our Gold & Silver Trading Alerts. You might also be interested in our new service - weekly Gold Investment Updates, which we have recently introduced, and which we provide at promotional terms. Try them out today.

    Thank you.

    Sincerely,
    Przemyslaw Radomski, CFA
    Editor-in-chief, Gold & Silver Fund Manager

  • Gold Investment Update: Comprehensive Analysis of Precious Metals for Very Volatile Times

    March 23, 2020, 11:36 AM

    Traders consult higher timeframes so as to get a big picture view that filters out some short-term noise. So, what story does the monthly gold chart tell?

    Gold reversed in February, creating a crystal-clear shooting star candlestick. The monthly volume was big, meaning that this candlestick formation is valid. The shooting star is a bearish sign for the following weeks and/or months, especially that in 5 out of 5 previous times that we saw it, such moves lower followed.

    The most interesting thing is that two of those five cases formed in 2008, which is yet another link between 2008 and 2020. One of the biggest and sharpest declines in the precious metals sector started with the formation that we just saw. The implications are very bearish - it seems that gold has already formed its final reversal for this medium-term rally.

    Please note that March is far from being over, but it seems relatively clear that the top in gold is already in. So far, gold is repeating its February reversal, which has bearish implications for the following weeks and months.

    And speaking of major gold moves, please note how perfectly the long-term triangle-vertex-based reversals in gold worked.

    Gold was very likely to reverse, and it did exactly that, just like we had written earlier.

    Reversals should be confirmed by big volume, and the volume, on which gold reversed was truly epic, and that's a perfectly bearish confirmation. It was the biggest weekly gold volume EVER.

    Well, until two weeks ago, when the record was broken. Gold once again reversed on record-breaking volume. This makes the previous signal even stronger.

    We already wrote a lot today about gold and we will write even more, also about silver and miners. We will cover multiple signs that point to lower precious metals prices in the following weeks and months (not days, though). But, the record-breaking-volume reversals are alone enough to make the outlook bearish. That's how significant this reversal-volume combination is.

    In addition to the above, the above chart shows the next medium-term target for gold - at about $1,400 level. This target is based on the mid-2013 high in weekly closing prices, the 38.2% Fibonacci retracement based on the 2015 - 2019 upswing, and the rising medium-term support line. Of course, that's just the initial target, gold is likely to decline more after pausing close to $1,400.

    The above chart also featured a triangle-vertex-based reversal in early April - about a month from now. It could be the case that gold declines to $1,400 at that time.

    Last Monday, we wrote the following:

    Still, based on today's pre-market move to $1,451 along with Fed's actions, it seems that we might get a local rebound also early this week. The above price level corresponds to the late-2019 lows, which served as support.

    Indeed, we got a local rebound early last week and the abovementioned price of $1,451 was the bottom from which this rebound started. Still, it seems that this rebound is not yet over, as the USD Index has not corrected just yet.

    Before moving further, we would like to show you how well the triangle-vertex-based reversal gold trading technique worked recently. We're going to apply it later today

    Gold reversed at the beginning of the year (top), then it reversed at the next reversal point (local bottom) and now it seems to have finally topped at the final triangle-vertex-based reversal point.

    The final top in intraday terms was incredibly precisely indicated by the triangle vertex reversal point.

    The recent top just several dollars above the previous 2020 high is quite in tune with the way the previous major tops formed.

    On a short-term basis, we see that gold broke above the third declining resistance line and verified this breakdown by temporarily moving back down and then up again. The "three line break" is one of the technical tools that help to pinpoint the breakouts, and it currently predicts higher gold prices in the near term.

    Thank you for reading today's free analysis. If you'd like to supplement the above with details regarding the details of our current trading positions (and the upcoming ones), we encourage you to subscribe to our Gold & Silver Trading Alerts. You might also be interested in our new service - weekly Gold Investment Updates, which we have recently introduced, and which we provide at promotional terms. Try them out today.

    Thank you.

    Sincerely,
    Przemyslaw Radomski, CFA
    Editor-in-chief, Gold & Silver Fund Manager

  • Gold Investment Update: Silver’s Breakdown, Miners Reversal, and Profits – Lots of Profits

    March 16, 2020, 2:58 PM

    Wow, what a move we just saw in silver... Without further ado, let's dive into the chart.

    Silver just plunged to our initial target level and reversed shortly after doing so. It was for many months that we've been featuring the above silver chart along with the analogy to the 2008 slide. People were laughing at us when we told them that silver was likely to slide below $10.

    Well, today's low of $11.80 proves that we were not out of our minds after all. Our initial target was reached, and as we had explained earlier today, the entire panic-driven plunge has only begun.

    Those who were laughing the loudest will prefer not to notice that silver reversed its course at a very similar price level at which it had reversed initially in 2008. It was $12.40 back then, but silver started the decline from about 50 cent higher level, so these moves are very similar.

    This means that the key analogy in silver (in addition to the situation being similar to mid-90s) remains intact.

    It also means that silver is very likely to decline AT LEAST to $9. At this point we can't rule out a scenario in which silver drops even to its all-time lows around $4-$5.

    Crazy, right? Well, silver was trading at about $19 less than a month ago. These are crazy times, and crazy prices might be quite realistic after all. The worst is yet to come.

    Let's quote what the 2008-now analogy is all about in case of silver.

    There is no meaningful link in case of time, or shape of the price moves, but if we consider the starting and ending points of the price moves that we saw in both cases, the link becomes obvious and very important. And as we explained in the opening part of today's analysis, price patterns tend to repeat themselves to a considerable extent. Sometimes directly, and sometimes proportionately.

    The rallies that led to the 2008 and 2016 tops started at about $14 and we marked them both with orange ellipses. Then both rallies ended at about $21. Then they both declined to about $16. Then they both rallied by about $3. The 2008 top was a bit higher as it started from a bit higher level. And it was from these tops (the mid-2008 top and the early 2017 top) that silver started its final decline.

    In 2008, silver kept on declining until it moved below $9. Right now, silver's medium-term downtrend is still underway. If it's not clear that silver remains in a downtrend, please note that the bottoms that are analogous to bottoms that gold recently reached, are the ones from late 2011 - at about $27. Silver topped close to $20.

    The white metal hasn't completed the decline below $9 yet, and at the same time it didn't move above $19 - $21, which would invalidate the analogy. This means that the decline below $10, perhaps even below $9 is still underway.

    Naturally, the implications for the following months are bearish.

    Let's consider one more similarity in the case of silver. The 2012 and the 2018 - today performance are relatively similar, and we marked them with red rectangles. They both started with a clear reversal and a steady decline. Then silver bottomed in a multi-bottom fashion, and rallied. This time, silver moved above its initial high, but the size of the rally that took it to the local top (green line) was practically identical as the one that we saw in the second half of 2012.

    The decline that silver started in late 2012 was the biggest decline in many years, but in its early part it was not clear that it's a decline at all. Similarly to what we see now, silver moved back and forth with lower highs and lower lows, but people were quite optimistic overall, especially that they had previously seen silver at much higher prices (at about $50 and at about $20, respectively).

    Also, if you didn't profit on the recent decline in silver, don't despair - this decline seems to be far from over and there will be plenty of room for profits, especially that silver seems to be starting a corrective upswing now. Just like it did in the 2008. Back then, it corrected to about $14 before moving lower and this might be a realistic target also this time. This would serve as a verification of the breakdown below the 2015 low, and it would open the way for even lower silver prices.

    Meanwhile, silver's relationship with gold continues to support medium-term downtrend in the precious metals sector.

    Remember the time, when the gold to silver ratio moved to 80 and practically everyone (well, we didn't) told you to buy silver? We told you that the real long-term resistance was at the 100 level, and that the gold to silver ratio broke above the previous highs, it was likely to shoot up. That's exactly what happened.

    Last week we wrote about the move to the 100 level in the following way:

    We've been writing the above for weeks, despite numerous calls for a lower gold to silver ratio. And our target of 100 was just hit today. It was only hit on an intraday basis, not in terms of the daily closing prices, but it's still notable.

    We had been expecting the gold to silver ratio to hit this extreme close or at the very bottom and the end of the medium-term decline in the precious metals sector - similarly to what happened in 2008. Obviously, that's not what happened.

    Instead, the ratio moved to 100 in the situation where gold rallied, likely based on its safe-haven status, and silver plunged based on its industrial uses.

    Despite numerous similarities to 2008, the ratio didn't rally as much as it did back then. If the decline in the PMs is just starting - and that does appear to be the case - then the very strong long-term resistance of 100 might not be able to trigger a rebound.

    It might also be the case that for some time gold declines faster than silver, which would make the ratio move back down from the 100 level. The 100 level could then be re-tested at the final bottom.

    Or... which seems more realistic, silver and mining stocks could slide to the level that we originally expected them to while gold ultimately bottoms higher than at $890. Perhaps even higher than $1,000. With gold at $1,100 or so, and silver at about $9, the gold to silver ratio would be a bit over 120.

    If the rally in the gold to silver ratio is similar to the one that we saw in 2008, the 118 level or so could really be in the cards. This means that the combination of the above-mentioned price levels would not be out of the question.

    At this time it's too early to say what combination of price levels will be seen at the final bottom, but we can say that the way gold reacted recently and how it relates to everything else in the world, makes gold likely to decline in the following months. Silver is likely to fall as well and its unlikely that a local top in the gold to silver ratio will prevent further declines.

    Indeed, gold to silver ratio didn't stop the decline and it's unlikely to stop it anytime soon. The reason is that the ratio broke above the 100 level and today, it soared above it even more. At the moment of writing these words, the gold to silver ratio is trading at about 120.

    Breakout above the resistance level as extremely important is very likely to be followed by at least a pullback. A comeback to this level (100) and then another move up seems to be the most likely outcome.

    This means that silver would be likely to recover - and it would be likely to recover more than gold.

  • Gold Investment Update: So Many Bullish Factors... That Gold is Ignoring

    March 9, 2020, 10:25 AM

    Gold is testing its previous 2020 highs, but silver plunged anyway, which created a very special situation. Namely, the gold to silver ratio just jumped to the 100 level.

    This may not seem like a big deal, because ultimately people buy metals, not their ratio, but it actually is a huge deal. This ratio is observed by investors and traders alike, as it tends to peak at the market extremes. Moving to the 100 level might indicate that we are at a price extreme. But what kind of extreme would that be if silver is declining while gold moved up?

    Let's take a closer look at the gold to silver ratio chart for details.

    In early July 2019, the gold to silver ratio topped after breaking above the previous highs and now it's after the verification of this breakout. Despite the sharp pullback, the ratio moved back below the 2008 high only very briefly. It stabilized above the 2008 high shortly thereafter and now it's moving up once again.

    It previously moved up relatively slowly, but it jumped to new highs last week and today.

    Anything after a breakout is vulnerable to a quick correction to the previously broken levels. On the other hand, anything after a breakout that was already confirmed, is ready to move higher and the risk of another corrective decline is much lower.

    The most important thing about the gold and silver ratio chart to keep in mind is that it's after a breakout above the 2008 high and this breakout was already verified. This means that the ratio is likely to rally further. It's not likely to decline based on being "high" relative to its historical average. That's not how breakouts work.

    The breakout above the previous highs was verified by a pullback to them and now the ratio moved even higher, just as we've been expecting it to.

    The true, long-term resistance in the gold to silver ratio is at about 100 level. This level was not yet reached, which means that as long as the trend remains intact (and it does remain intact), the 100 level will continue to be the likely target.

    We've been writing the above for weeks (hence we formatted it with italics), despite numerous calls for a lower gold to silver ratio from many of our colleagues. And our target of 100 was just hit today. It was only hit on an intraday basis, not in terms of the daily closing prices, but it's still notable.

    We had been expecting the gold to silver ratio to hit this extreme close or at the very bottom and the end of the medium-term decline in the precious metals sector - similarly to what happened in 2008. Obviously, that's not what happened.

    Instead, the ratio moved to 100 in the situation where gold rallied, likely based on its safe-haven status, and silver plunged based on its industrial uses.

    Despite numerous similarities to 2008, the ratio didn't rally as much as it did back then. If the decline in the PMs is just starting - and that does appear to be the case - then the very strong long-term resistance of 100 might not be able to trigger a rebound.

    It might also be the case that for some time gold declines faster than silver, which would make the ratio move back down from the 100 level. The 100 level could then be re-tested at the final bottom.

    Or... which seems more realistic, silver and mining stocks could slide to the level that we originally expected them to while gold ultimately bottoms higher than at $890. Perhaps even higher than $1,000. With gold at $1,100 or so, and silver at about $9, the gold to silver ratio would be a bit over 120.

    If the rally in the gold to silver ratio is similar to the one that we saw in 2008, the 118 level or so could really be in the cards. This means that the combination of the above-mentioned price levels would not be out of the question.

    At this time it's too early to say what combination of price levels will be seen at the final bottom, but we can say that the way gold reacted recently and how it relates to everything else in the world, makes gold likely to decline in the following months. Silver is likely to fall as well and its unlikely that a local top in the gold to silver ratio will prevent further declines.

    Thank you for reading today's free analysis. If you'd like to supplement the above with details regarding the details of our current trading positions (and the upcoming ones), we encourage you to subscribe to our Gold & Silver Trading Alerts. You might also be interested in our new service - weekly Gold Investment Updates, which we have recently introduced, and which we provide at promotional terms. Try them out today.

    Thank you.

    Sincerely,
    Przemyslaw Radomski, CFA
    Editor-in-chief, Gold & Silver Fund Manager

  • Gold Investment Update: The 2020 Top in Gold Is In

    March 2, 2020, 6:33 AM

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