Risk of a larger decline beneath $1600.
Gold remains bearish after its dramatic 20% price fall, which helped confirm the extreme overbought conditions (marked by DeMark™ indicators). This also timed a key cycle peak, ahead of that all-important $2000 glass-ceiling.
Most concerning is that speculative (net long) flows have recently breached a key downside level which may threaten over 2 years of sizeable long gold positions.
In price terms, Gold’s latest 20% bearish slide is still worth less than the largest average drawdown measured since the start of the yellow metal’s long-term bull market in 1999.
There is heightened risk of a much larger decline if we confirm a weekly close beneath $1600 and $1547 (200-day MA), which has not been breached in 3 years!
A number of “bargain hunting” trend-followers will be watching this benchmark “line in the sand” for repeat support or a potential big squeeze lower into $1300 and perhaps even $1040-1000. Remember, this would still offer a unique buying opportunity in the near future.
SILVER
Key support at $26.0700.
Silver’s latest price capitulation is a painful reminder to the investment community that lightning can strike twice. Note, this marks the second time silver has crashed, following its 30% fall from April this year.
The move was triggered following a DeMark™ exhaustion sell signal and has now wiped out almost 50% of silver’s prior gains (taken from Silver’s all-time high at 49.7900) which was last seen in 1980.
Such a dramatic move traditionally produces volatile trading ranges. This allows the market to have enough time to recover and accumulate renewed buying interest.
Expect a large trading range to hold between $37.0000-26.0700 over the multi-week/month horizon, with downside macro risk into $21.5165 (61.8% Fib-1999 bull market) and $20.0000. This would still maintain silver’s long-term uptrend and help offer a potential buying opportunity for the eventual resumption higher.
Continue to watch the gold-silver “mint” ratio which has now accelerated higher by 67%, suggesting further risk aversion over the next few weeks.
Please see the attached chart below.