Introductory Remarks by PT
Dear readers, we are hereby beginning to publish material from a new author, Florian Grummes of Midas Touch Consulting. Some of you may already know Florian from his contributions to recent issues of the annual "In Gold We Trust" report by Incrementum. He is a well-known and highly respected market analyst (particularly of gold and cryptocurrency markets) in the German-speaking parts of the world and we hope we will be able to contribute a bit to making his extremely interesting work more widely known to an international audience.
Meet Florian Grummes, founder of Midas Touch Consulting.
The Midas Touch Gold Model is a proprietary model Florian developed, which as the name already indicates is designed to evaluate trends and potential trend changes in the gold market. Below follows the most recent update of the model. We are posting this update with a slight delay of two days, but that should not be an issue - if any major signal changes occur, they will be conveyed as soon as we are apprised of them. Without further ado, here is the report (as we are always wont to do, we have added a few charts and caption comments where appropriate):
Gold model components - The Midas Touch Gold Model?,,? as of July 25th, 2018
While gold and silver prices are collapsing since mid June, the Midas Touch Gold Model?,,? has been in neutral mode for the last two months already. It was very important to make this call to move to the sidelines and watch what would unfold in the precious metals sector.
In hindsight a clear and bearish sell signal would have been a good opportunity to profit from shorting these markets, but due to the relative strength seen in the mining stocks the model simply remained neutral. Aside from its overall neutral stance, a lot of new bullish and bearish signals have been triggered within the .Midas Touch Gold Model?,,?
First of all - and that is a very negative development - the monthly chart for Gold in USD has shifted to a bearish signal. It now takes a move in the gold price back above USD 1,365 to turn this signal around again. The last time this "big picture" signal changed was 11 months ago. Obviously, the big picture component will be negative for the next couple of months at least!
Looking at the weekly chart for Gold in USD, we find an extremely negative "bearish embedded stochastic status", which is dragging the market down for many weeks already. Once this signal changes, the recovery rally will have started.
Gold weekly, with RSI and Stochastics. The recent downtrend in gold was relentless (mirroring the rally in the US dollar), but was not confirmed by precious metals stocks - unfortunately the latter may be about to change in view of earnings-induced weakness in several senior producer stocks in recent days. [PT]
On the daily chart it would now take a gold price above USD 1,244 to shift the chart to back to a bullish status. More precisely, right now it seems that if gold were able to close above USD 1,237, the probability that a bottom has been established would increase strongly .
One of the most bullish signals comes from the beaten down sentiment data. According to sentimenttrader.com, combined sentiment on gold, silver, and platinum now "ranks among the worst since 1990". Historically similar depressed sentiment levels have led to excellent returns in gold, silver, platinum and mining stocks over the following three months.
The Gold Optix indicator, the calculation of which is by based on a combination of the most prominent sentiment survey data as well as gold-related positioning data in futures and options markets. It has recently reached levels close to the most extreme historical readings to date. [PT]
Statistics on gold returns after previous occasions when the Gold Optix hit levels below 24 points. [PT]
Combined precious metals sentiment readings according to the Optix indicator were recently below 24 points! Gold should post strong returns over the next three months based on historical statistics. In combination with the contrarian buy signal coming from the CoT-report, as well as the positive seasonal cycle, gold should be very close to a multi-week/multi-month bounce/recovery.
In this context the new sell signal coming from the Gold/Silver-Ratio does not seem to put too much negative pressure on the table. The ratio has been moving within a small range and just one or two strong days in silver could quickly reverse this bearish reading.
Another positive note is a slight increase in ETF demand. It is of course still very small; but while gold is down heavily, investor demand has added 3.5 tons of gold to GLD's bullion holdings over the past two weeks. Gold in Chinese Yuan has issued a buy signal on Monday as well, while the CoT report for the US-Dollar shows a rather high commercial short position in the meantime.
GLD - price vs. bullion held in trust. A slight divergence has recently emerged, which means that GLD must have traded at a premium over spot on several occasions recently, which is the incentive for authorized participants to purchase bullion for the ETF and issue new baskets of shares. This shows that despite falling prices, investor demand for GLD has improved. [PT]
In summary, it seems as if all the necessary ingredients for a sizable Gold recovery and the expected summer rally are on the table. And yet, the market does not show any inclination to reverse so far but remains in a persistent downdraft. Gold is hanging around USD 1,226 USD and is not showing any convincing signs establishing a bottom. One more final sell-off toward the lower monthly Bollinger Band at around USD 1,182 may well be required.
If this indeed happens, we would have an extremely exaggerated this down move on our hands. A fast snap-back rally (i.e., a short squeeze) will then probably be the only way the situation in this extremely oversold market can be resolved. Thus we would expect a bottom somewhere between USD 1,180 and USD 1,210 followed by a quick snap-back rally toward at least USD 1,265 USD or even USD 1,300.
While a coming short squeeze is very likely in the short-term, the bigger picture certainly has suffered over the last couple of weeks. As the ascending triangle previously in place has been clearly violated, the bear market in gold may have reasserted itself. Gold should not experience such weak momentum during a bull market. Therefore the USD 155 sell-off since mid April raises the probability that gold is still in an overarching bear market.
At the same time the market is extremely oversold, and this exaggeration could also create enough power for a decisive breakout through 1,365 USD. It is still too early to come to a definitive conclusion, but the nature of the next wave up will be critical and should provide is with greater clarity about the big picture.
Overall, the Midas Touch Gold Model?,,? is still neutral. The model needs more bullish signals in iots components before it can finally sound a bullish all clear again.
Florian Grummes is an independent financial analyst, advisor, consultant, trader & investor as well as an international speaker with more than 20 years of experience in financial markets. He is specializing in precious metals, cryptocurrencies and technical analysis. He writes a bi-weekly in-depth gold and silver analysis for one of Germany's largest gold and silver retailers, the ?EUR?Pro Aurum" group. Moreover, he is publishing a bi-weekly comprehensive gold & bitcoin analysis for international readers.
Charts and tables by: Midas Touch Consulting, stockcharts, sentimentrader, goldchartsrus.com (formerly sharelynx)
Editing plus chart and image captions by PT