Gold Broke Out Of Its Range; Is $1,484 Next?

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Includes: BAR, DGL, DGLD, DGP, DGZ, DZZ, GEUR, GHE, GHS, GLD, GLDI, GLDW, GLL, GTU, GYEN, IAU, OUNZ, PHYS, QGLDX, SGOL, UBG, UGL, UGLD
by: Scot Macdonald

Summary

The forecast that we made on September 28, 2017, indicated that the targets for gold in 2018 were bullish and were in the $1,386 to $1,484 range.

If we look at the gold market, we have been in a trading range until recently of about $50, and we recently broke out of this trading range.

The VC PMI is identifying that we have entered a level of supply and overbought conditions short term.

Looking Back?

The forecast we made using the Variable Changing Price Momentum Indicator (VC PMI) on September 28, 2017, for the next year appears to have been validated. The forecast that we made on September 28, 2017, indicated that the targets for gold were bullish and were in the $1386 to $1484 range. This was the beginning of the 360-day cycle that began on September 28, 2017. If we look at the price action since that date, we can see that, in fact, this was a major bottom that occurred at the beginning of the 360-day cycle projection. When we look at the current price of gold, we can see that we have broken out this past week into a high that we made on the June gold contract of $1356 on the daily chart.

If we look at the energy that we saw in the gold market last week, the reversion to the mean is accelerating towards the sell 1 (S1) target of $1386 that we forecast on September 28, 2017. This coincides with the 180-day cycle period, which indicates that we could be looking at a short-term top in the market. If we come into next week and we are able to take out the $1386 level, after breaking the previous highs/resistance levels in the area of $1353 to $1370, this will accomplish the 180-day cycle of the first S1 level of $1386 of the 360-day cycle. The fact that when the market touches the first S1 level confirms that it has activated the sell 2 (S2) level at $1484, which we forecast on September 28, 2017. As we approach the $1386 target, it is very strongly recommended that self-directed traders take some profits off the table. It might not be a bad idea to consider some short-term bearish strategies or strategies that will allow you to protect some of the profits you have made so far before the reversion to the mean occurs.

Gold Broke Out Of Its Range - Is $1,484 Next?

If we look at the gold market, we have been in a trading range until recently of about $50, and we recently broke out of this trading range. The low end of the range is the $1304 level that was established on March 1. We traded through the high of $1354 on January 25 and broke out of this trading range, establishing that much higher prices are yet to come.

The VC PMI identifies the extreme above the mean and when it is identified, the reversion to the mean occurs 90% of the time from the S1 level and 95% of the time from the S2 level. As the market enters into this $100-trading range, we are tapping into the bottom of the range. The upper end of the range is $1484, which is a $100 move from the S2 level. The question is; are we going to accelerate on a close above $1385 into that $1484 level rather quickly or revert back to test the mean first?

More Supply May Come Onto The Market

If we take into account that the VC PMI is identifying that we have entered a level of supply and that the market by trading above this level of supply is indicating that it is extremely overbought, the price might have gone beyond its value rate or velocity short-term and exceeded it towards the 180-day cycle top at $1386. This is strong confirmation that as we move into this 180-day cycle, the price is reaching the S1 level. This is very harmonic between the price and time. This area is going to be offered as an area of supply, and we could see some large supply come into the market and cause the price to revert back down to the mean.

It's Not the Time to Raise Interest Rates

When we put into perspective the tremendous amount of chatter that is going on politically and economically on the national and global stages regarding interest rates, it is difficult to get a clear picture of how some of these policies might affect the world's stock and real estate markets and the US dollar. It is my opinion that even though the government is producing data that appears to suggest that the economy is recovering from the Great Recession of 2008, when you look at the environment in relation to interest rates, debt, and the US dollar as a reserve currency depreciating in value, even as the Fed increases interest rates, there are alarm bells ringing that indicate something dire is about to happen.

The LIBOR rate is beginning to show that spreads are inverting as interest rates go up short term. Those spreads are going to invert and attract cash short-term from the long end of the market. A lot of money seems to be moving into the short end of the yield curve. With interest rates rising short term, it is increasing the risk for the 30-year bond market to maintain its integrity and price. As interest rates seem to be on the way up, we need to look at government debt levels. It is beyond me why the Fed would raise interest rates at a time of record debt. There is also a great deal of spending taking place. I believe that it is a recipe for disaster. If we were in a 1980s environment, where interest rates were at 15% and Reaganomics came in, there was room to manipulate interest rates down. Such a decrease in rates added fuel to the economy and led to economic growth. With record low rates and a massive record debt obligation currently, an increase in interest rates is the last thing that should be done to help the economy. What we have now is inflation suppressed in some sense as stagflation, although we have seen inflation moving into the stock market, which has set record highs, and in Bitcoin as a consequence of the demand of money that is sitting on the periphery of the economy and is looking for a decentralized form of an asset that can give the advantage of anonymity. Raising interest rates and threatening trade wars appears to be the last thing to do in such an environment. It could lead to hyperinflation sooner than we think.

Interest Rates Rise; US Dollar Declines

Since we began to hear chatter about trade wars, we have seen the US dollar begin to accelerate to the downside, even though we have seen a rise in interest rates and the expectation that there are more rate hikes on the way. That in itself is an indication that the market doesn't agree with the current government monetary and economic policies. Even though we are in an environment of rising interest rates, which should support the dollar, the dollar continues to decline. For all intents and purposes, it is beginning to accelerate down toward that 80 target that we discussed on Seeking Alpha a few months ago.

Gold Rises

These policies and a falling dollar have meant that gold has broken out of its $50 trading range based on current beliefs about rising interest rates, a falling US dollar, and an increasing risk of trade wars.

The VC PMI for Gold and the S&D weekly levels:

Courtesy: ema2tradelivesignals.com.

As we come into next week, the VC PMI supply and demand levels that we published on March 23, 2018, give us a short-term picture of how we can trade these markets next week. Self-directed individuals can use these levels to manage their positions in the gold market.

The first filter that the VC PMI uses is the 9-day moving average, which is at $1340. With the market closing at $1356 Friday, it's telling us that the trend momentum is bullish. You also can use this level as a pivot point stop to protect your profits if you purchased gold below $1300 as indicated in our previous reports.

The second filter that we use is the mean or average price the VC PMI, which is $1341. With the market closing above $1341, it indicates that the price momentum is bullish. You can also use this as a protective stop pivot point. However, if it closes below $1341, it negates this bullish price momentum for the coming week. This price almost matches the 9-day moving average of $1340. If you are a self-directed trader, use $1340 as a trailing stop. You can use this price for any other trading in gold related instruments, whether in gold mining shares or the cash market as a form of a hedge or an indication of a reversal of the current trend is taking place. You also can use it as a tool to help you manage the inventory or your portfolio and as an indication of the direction of the market. Its application is multidimensional depending on the type of trader or investor that you are.

As we come into next week, with the market closing above $1341, it's identifying the S1 targets of the extreme above the mean to be $1370 (S1) and $1385 (S2), which is where you should take profits. This closely matches the 360-day target of $1386 that we published on September 28, 2017. This combination of time and price is a harmonic alignment that if completed, identifies a 90% chance that the market will revert back towards the $1340 area and test the weekly and daily moving averages.

The VC PMI can also be used to analyze other markets, including 21 other markets we currently produce reports on. We analyze gold and silver on Seeking Alpha to provide you with a taste of the power and possibilities of the VC PMI automated artificial intelligence algorithm.

Disclaimer: The information in the Market Commentaries was obtained from sources believed to be reliable, but we do not guarantee its accuracy. Neither the information nor any opinion expressed herein constitutes a solicitation of the purchase or sale of any futures or options contracts. It is for educational purposes only.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.