The Gold Bear Is in Charge but the Bull Is Waiting

Ideal conditions were in place two weeks ago for a big drop in Gold and Silver, and they have not disappointed. In fact, both continue to fall. On the bright side, we are fast approaching my targets for the bottom in both metals at lower lows around 1920-50 in Gold and 21-22 in Silver.

Signs that Gold & Silver Were Going Down

The Banks increased their already massive net short position in Gold as of last Tuesday, exceeding their short position at the peak in May, when Gold topped out at 2085 and fell to 1824. Back then, Gold didn’t hit bottom until the Banks’ net short position dropped to just 72k contracts. They were net short 187k contracts on Tuesday. They need to shed up to 115k contracts. And people wondered why I was bearish “in the short-term”? 

We have to wait for new data on Friday, but I’m guessing they have begun to cover their shorts as the price has fallen. The big question is by how much?

The negative divergences on all indicators and on both the daily and weekly charts made it a slam dunk, imho.

Daily:

Weekly:

Looking at the RSIs on both charts, Gold still has plenty of room to fall further.

Sentiment was also extreme bullish, which is a wonderful contrarian indicator. Clearly it is falling now, but it’s not sufficiently bearish yet for a bottom, imho, reinforcing that we have further to go yet.

Lastly, I expected a rebound in both the 10Y yield and the DXY after such big drops in both, despite the Fed’s dovish tone recently. Nothing goes up or down in a straight line, and both were oversold and bearish. 

10Y Yield

The 10Y yield fell almost straight down from 5% to 3.80%, a huge move for bonds. Now it is turning up. I expect it to rise to 4.10-4.25% and then turn down again. 

DXY

When the 10Y yield rises, the DXY tends to follow. The DXY has risen from 100 to 102.50 so far. I expect it to continue to rise in line with the 10Y and then turn down together also.

The rise in both has contributed to the weakness in the metals.

Simply put, the data was compelling that Gold and Silver were heading much lower. Even though the metals have fallen somewhat, especially Silver, I believe there is more downside to come.

Using an A-B-C format and knowing what the peaks in B were, my ideal targets on the downside for Gold and Silver are as follows:

More broadly, I expect Gold to fall to somewhere between 1920-1950 and Silver between 21-22.

I’ll also be watching for: 

·         A peak in the 10Y yield and the DXY

·         A significant drop in the short position of the banks

·         Sentiment turning bearish

·         Extreme oversold or positively divergent RSIs

Final Thoughts on Gold and Silver Prices

Many believe I am bearish, but the truth is the exact opposite. I am a raging bull in Gold and Silver. The reason for the confusion is that I am objective. I rely on data. When the data tells me Gold and Silver have a high probability of going lower, I listen to it. The same goes for the opposite direction too, which brings me to this point: I believe that when we hit these next lower lows, they will be ‘THE LOWS’. Emphasizing my degree of conviction, I plan to go all-in when we hit bottom in Gold, Silver, and the miners, then just let it ride to 2200-2400 in Gold, 30 in Silver, and ~40 in GDX or higher next. Does that sound bearish to you?