Aug 2018 – Gold & Silver – Does It Feel Like 2015? 13th August 2018

It certainly feels like late 2015 all over again. The number of commentators increasingly becoming vocal with a similar sounding tune: gold is heading below $1,000. Whether due to breaking a trend channel, technical levels, the US Chinese trade war or a number of even more colourful reasons. They share a common theme with absolute certainty: gold is dead.

A common question from investors is could we be suffering the fallout from US-Chinese trade tensions? The US raising tariffs has caused the Chinese to react by devaluing their currency against the US dollar. The currency headwind is being highlighted by some commentators as the reason metals not only dropped recently but also contributing to the lack of movement since hitting their recent lows, and I have included the following chart so you can see the point they are noting:

Daily Gold vs USD/CNY  Chart 13-August-2018   

While I can see the potential for this pullback to take longer and even take us abit lower, I do not have any clear indications that any of the reasons being offered across the market suggest Gold is headed below $1,000 or Silver headed below $10. Rather, I believe many of these investors and traders will likely lose money shorting aggressively. Ironically, covering their losing shorts later will provide a significant amount of fuel when we begin the next major rally in the metals complex.

The biggest factor for why I disagree in both Gold and Silver is the positive divergences [green lines on MACD, RSI and Stochastics at bottom of charts] that are becoming even more clear over the past couple of weeks. As you can see in the charts below, the lower lows we have seen in prices have not been confirmed by lower lows in the technical studies. This is what we call a positive divergence. It shows a bears are losing strength and often suggests an imminent market bottom, as we saw similarly at the last major bottom.

Daily Gold Chart 13-August-2018
Daily Silver Chart 13-August-2018
Jonathan Salmon

Jonathan Salmon

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