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Clive Maund »» Gold Market Update
By: Clive Maund | March 23, 2020

Although gold’s nasty drop of the past 2 weeks back to support has not yet broken the hitherto bullish picture, it is viewed as a sign that it is in the process of reversing trend (from up to down). We can best see how this drop relates to prior action on the latest 2-year gold chart, on which we see that it took it down to an important support level, which looks likely to hold for now, especially as its moving averages are still in bullish alignment. However, it is suspected that a Head-and-Shoulders top may be forming as shown on the chart, and that what we may now see is a Right Shoulder build out to complete the pattern, which implies that the massively oversold stockmarket, which dragged gold down, is going to stage a relief rally. The S&P500 index is shown at the top of this chart for direct comparison.



On gold’s 10-year chart we see that the sharp drop of the past 2 weeks has thus far not broken it down below its giant Bowl pattern which is now providing support and expected to generate a modest rally. However, upon completion of the expected Head-and-Shoulders top (and broad market short-covering relief rally) it is expected to turn down again and break down from the Bowl pattern…



Although gold’s COT has moderated in recent weeks, it is certainly not by enough to stop it dropping a lot further, notwithstanding the expected short-term rally.



Turning now to the stockmarket we see on the latest 2-year chart for the S&P500 index that the brutal decline of recent weeks has brought it down near to support at the lower boundary of its large bullhorn pattern, as we had earlier expected. This decline has been so savage that it is now record oversold on its MACD by a huge margin, which is of course a reflection of the extreme negative sentiment prevailing. The outlook is universally considered to be awful, with virtually no-one left to turn bearish. In this situation, the slightest glimmer of light at the end of the tunnel could trigger a short-covering panic, not because anyone is bullish, but just because prices are rising and shorts become moved to locked in profits. Any such panic will provide the excuse for a snapback rally in commodities such as copper and oil, gold and especially silver, which has been savaged in the recent past. The extremely heavy volume of recent days is also a sign that we may be at a temporary bottom



On the 7-year chart for the S&P500 index we can see the origin of the strong support that is now not far below the index and thus starting to come into play, and the current insanely oversold extreme (MACD) means that a blistering short-covering rally could commence at any time, and again, this would not be because investors are becoming bullish, but because any significant rally would move shorts to lock in profits quickly.



Lastly the very long-term 40-year chart shows us how high the market has gotten in the recent past and how far it has yet to drop before it arrives at the strong support shown, and it also shows how extreme is the current freak oversold reading on the MACD, although of course this is due to unprecedented conditions. Here we see that, despite the steep drop of recent weeks, it has only just broken down from the bullmarket in force from early 2009.



The latest S&P500 index COT shows that Commercial long positions have ramped up to a very high level, which is another factor making a dramatic short-covering rally increasingly likely…



If the stockmarket is going to stage a snapback rally soon, then we should be able to see some evidence of it elsewhere, and we can.

A large bull hammer candlestick appeared on the copper chart on Thursday, after a steep drop, suggesting that copper may be about to bounce back soon, which is made more likely by China bringing the coronavirus situation under control, if they really are….



Although the oil charts still look awful, it has fallen a lot already to become deeply oversold, which increases the likelihood of some sort of recovery rally…



A big reason that the commodity complex got clobbered over the past couple of weeks is of course that the dollar has broken out and gone on a tear, and become extremely overbought, so how does the dollar index look on its latest 6-month chart? After a vertical ascent over the past week or two it put in a bearish hanging man candle on candle on Friday, suggesting that it could now react back, or at least stop to consolidate, which would give commodities a window to rally, especially if the stockmarket recovers some…



The conclusion is that a snapback rally in the stockmarket is becoming more likely soon, that could be violent, and if it coincides with even a modest reaction in the dollar, it will likely ignite a recovery rally in commodities, including gold and silver, that is later expected to be followed by renewed decline as the stockmarket drops anew.

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