How to deal with the correction in Precious metals| 21 August, 2020

Gold Price Forecast relative to
Long Term Monthly
(LT-M) – Medium Term Weekly (MT-W) – Short Term Daily (ST-D) – and Hourly (not shown) data

(Previous week in brackets)

1938 (1942)
Au Trend ↓ (↓) ↓ (↓) ↓ (↓)
Au % Risk
93 (93) 80 (87) 40 (37)
919 (945)
PT Trend ↑ (↑) ↓ (↓) ↓ (↑)
Pt % Risk
63 (65) 75 (78) 32 (52)
Allocation Pt:40% Au:60% (Total 100%)

Gold/USD live price

The past two weeks we introduced a stronger view on Platinum. That hasn’t changed.
The past week saw another rally in the metals which halted on Wednesday turning south again. So, what is the Gold/US$ risk play here. The position is long from very early in this advance hence very limited trading risk. Technically we can argue an Elloitt correction to the start of intermediary wave 5 around 1700 or a 38% Fibo correction of the entire advance which started at 1450 last March. 38% because a really fundamentally strong market should not c orrect much more than that. The point is that in strong markets in a longer term advance typically develops bearish divergence several times in the MT and LT timeframes before making a more serious correction. And this is why we should not play shorter term correction because a real risk of missing the best long trade ever could be devastating from a wealth preservation point of view. Hence accepting the correction at hand and be patient is the right longer term approach.
Platinuj again showed weakness in the ratio at the end of last week but just like wait for Silver it is a matter of time before Pt reaches par with Gold again and possibly well above. No Change.

14 August:: The correction in Precious Metals see last week is mild given the strong advanced since March, although a $190 drop no doubt feels like a big loss for active traders. As I have said for a long time, the type of move we have seen in 2020 typcally requires the Weekly and Monthly time frames to make multiple tops and develop bearish divergence where price makes new highs and risk weight lower highs. We haven’t seen that yet in Gold, hence staying fully invested on that basis alone. The risk weight downtrend in all time frames and daily risk weight already shows potential bullish divergence vis a vis Weekly at a much lower level imndicates a relatively low risk hold of this asset class.
Platinum has behaved more as we expected with a much shallower correction and the Gold/Platinum ratio moving in favor of the PT metal. We expect Platinum to reach $2,000 relatively quickly, catching up with par to gold and also benefitting from increased demand on less market liquidity. No Change.

Platinum/USD live price


(Previous week in brackets)

26.73 (26.40)
Trend ↑ (↑) ↓ (↓) ↑ (↑)
% Risk
80 (80) 82 (85) 57 (54)
Allocation 100% (100%)

Silver/USD live price

The huge bullish divergence that showed in most tools in March and which sparked the 150% rally in Silver has not yet developed a medium term bearish picture. Overbought yes, but no historic technical evidence that this is finished. The risk of some blow off top in the nearer or distant future is therefore high and we need to be patient. Besides Silvver really needs to find equilibrium in the Ratio with Gold. No Change staying fully invested.

14 August:: Technically, Silver has behaved like Gold last week with the usual higher volatility. The 20% drop from a wildly extended high at 29.85 is the common heat in the silver kitchen. Silver relative strength, stochastic and MACD signals should first develop at least one, but probably multiple bearish divergence setups before we see a major top. We are eyeing 37.30 as a first objective and 55.90 next being the 15 year support line with resistance drawn parallel from the 2011 peak. No change.

GOLD/SILVER Ratio Price Risk Analysis

(Previous week in brackets)

72.20 (73.30)
Trend ↓ (↓) ↓ (↑) ↑ (↓)
% Risk
24 (25) 8 (9) 19 (25)
Allocation 50/50 AU/AG (50/50 AU/AG)

Gold/Silver Ratio live price

Even though the Gold/Silver ratio looks a little exhausted after the major Covid led blow-off top and subsequent correction, we need to see proper bottoming action in the MT and LT time frames. Risk weight has not yet bottomed hence the risk of a quick move to horizontal support range between 60 and 65 is a serious possibility. If that breaks your next simple chart support is at ratio=35, which was the April 2011 all time high at 49.75 for Silver/USD. A pause in this type of market could take months and partience is the name of the game. Hard but usually rewarding if the typical LT risk weight scenario of a bottom hasn’t yet materialised. No Change.

14 August:: High silver volatility on the pullback turned the Gold/Silver ratio up towards 80 which is a 30% correction (10 points) on the full 30% correction (30 points) since the June consolidation around 100.
The GOLD SILVER Ratio has already made an incredible recovery towards our equilibrium and has not finished as this primary trend also requires Longer term risk weight to start showing proper exhaustion based on bullish divergence. We remain equally bullish for Silver and Gold with some actual, speculative, overweight in Silver. This position requires patience in order to reap the rewards later on. Gold, in a wealth preservation consideration, should always be a critical holding in a precious metals allocation. No Change.

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