Technical Scoop: Shakedown Collapses, Unsustainable Sharpness, Impending Worst

Excerpt from: Technical Scoop: Shakedown Collapses, Unsustainable Sharpness, Impending Worst

Source: www.stockcharts.com

It wasn’t a good week for the gold bugs. Peace was established, for the moment, in the Middle East. The Fed kept rates unchanged, as we all expected. But that was not overly friendly for gold. Of bigger interest is the ongoing fight between Trump and Powell. If Trump gets his way for the Fed to cut rates up to 2.5%, gold would likely soar. Nonetheless, this past week gold was weak because of peace, no rate cuts, and the stock market up yet again. The US$ Index fell. Gold would normally go up when that happens. Not this time. Both gold and the US$ Index fell. A divergence?

On the week, gold fell 2.8% while silver was down 0.2%. Another divergence as silver showed stronger. But the real star has been the ongoing rise/recovery of platinum (also known as “white gold”) that was up again by 5.9% to fresh 52-week highs. Helping platinum were power shortages in South Africa where 70% of the global supply comes from. Also, there was good demand for platinum, particularly in the automobile industry. Green energy is also fuel for platinum. On the other hand, palladium fell 6.7%, helped by increasing supply. Palladium has been moving from undersupplied to oversupplied. Copper, which is often a leader for gold rose 4.8% to close over $5. Tariff threats helped copper, along with tightening supply. There have also been disruptions to supply out of China. Copper is heavily used in green energy and EVs.

Gold broke support, suggesting now that it could fall to $3,150, the next good support. Major support is way down around $2,900. We are still questioning as to whether this is an E wave to an ABCDE-type correction that got underway with the high at $3,500. That correction back in October/December saw gold fall just over 9%. A comparable decline today would take gold to $3,185, close to our $3,150 support. Lots of things could reverse gold back to the upside, including the war in the Middle East resuming or the public fight between Trump and Powell intensifying, causing nervous investors to run to safe havens such as gold. New highs above $3,500 would end discussions of a decline for gold. Gold still remains bullish. But it must work through this correction. Again, this should be the last wave down of the pattern. July lows are not unusual for gold.

Source: www.stockcharts.com

If there is something positive to say about silver, it’s that while silver fell this past week, it outperformed gold. Silver fell 0.2%. Gold fell 2.8%. Earlier, silver had moved forward, breaking above $36 and making 52-week highs. Gold did rebound at that time but failed to take out the old high of $3,500. It’s an ongoing divergence. We’d like to say the divergence is in favour of silver. If that’s correct, then new highs for both should occur when this current correction is over. The fear right now is whether that breakout over $36 is a false move. We didn’t get substantially above to help suggest this was a good move. Now a break back under $35 could end the magic and turn silver down once again. Yes, there is good support down to $32, but we’d prefer not to see that. Under $32 silver is in more trouble. Under $31.50 we could test those last lows at $28.45. We keep hearing silver is about to explode to the upside. The problem is we’ve been hearing that for some time now and we’re still waiting. The breakout target is $44. But to realize that, we need to recover soon and see new highs above $37.30 the high so far. Indicators are for the most part neutral here.

Source: www.stockcharts.com

We can’t say we were surprised at the drop in the gold stocks this past week. The chart had been looking a bit iffy as we noted the previous week. Now the question is, how deep will the correction be? On the week, the TSX Gold Index (TGD) fell 3.8% while the Gold Bugs Index (HUI) was down 3.5%. The worst day was Friday, June 27 when the index fell 3.7%. We can see support for the TGD down to 470, but under that the correction could be steeper. After all, the TGD is up 43.8% on the year and the HUI up 47.7%. So, at best, profit-taking is not unusual. But, as we noted with gold itself, we don’t believe the bull is over. For the TGD we’d have to break back under 412. But we can’t dismiss a possible correction not dissimilar to that October to December decline when the TGD fell 20%. A comparable move now would be a decline to 414 which, coincidently, is just above the 412 point we noted. To put the bull back in place we’d have to break above 520.0. After that low in December, the potential for the TGD was a rise to just over 500. We accomplished that and exceeded it. The trend remains up as long as we hold above 465/470. Under that level, the trend would be weakened and set us up for a steeper correction.

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David Chapman is not a registered advisory service and is not an exempt market dealer (EMD) nor a licensed financial advisor. He does not and cannot give individualised market advice. David Chapman has worked in the financial industry for over 40 years including large financial corporations, banks, and investment dealers. The information in this newsletter is intended only for informational and educational purposes. It should not be construed as an offer, a solicitation of an offer or sale of any security. Every effort is made to provide accurate and complete information. However, we cannot guarantee that there will be no errors. We make no claims, promises or guarantees about the accuracy, completeness, or adequacy of the contents of this commentary and expressly disclaim liability for errors and omissions in the contents of this commentary. David Chapman will always use his best efforts to ensure the accuracy and timeliness of all information. The reader assumes all risk when trading in securities and David Chapman advises consulting a licensed professional financial advisor or portfolio manager such as Enriched Investing Incorporated before proceeding with any trade or idea presented in this newsletter. David Chapman may own shares in companies mentioned in this newsletter. Before making an investment, prospective investors should review each security’s offering documents which summarize the objectives, fees, expenses and associated risks. David Chapman shares his ideas and opinions for informational and educational purposes only and expects the reader to perform due diligence before considering a position in any security. That includes consulting with your own licensed professional financial advisor such as Enriched Investing Incorporated. Performance is not guaranteed, values change frequently, and past performance may not be repeated.