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The Precious Metals Bearish Case is Still Alive and Well

Summary

Despite the recent gold price rally an elevated volatility on the yearly time scale and the presence of a major overhead obstacle are hinting towards more longer term price weakness to come, which is as well confirmed by the bullish breakout of the gold-to-silver ratio and the continued downtrend in the price of silver. It would take an implausible and decisive move of gold above $1,370, of silver above $16.5, and a negation of the bullish breakout of the gold-to-silver ratio to invalidate the precious metals bear case. On the longer term we still expect to see gold at $1,000 before we can see it at $2,000 again and for silver to drift below $13.5.

The Gold bull should fail again below resistance

Gold (XAUUSD) is back below the same resistance line as visible on the quarterly chart that already rejected it lower in 2014 and 2018 when it was represented on our previous charts sixteen months and one year ago.

Gold (XAUUSD) Price Chart – Year + 6-Month + Quarter
gold-Q-6M-Y

It is tempting to assume that the gold trend has reverted and the precious metal bulls are rushing back to the hill side but the gold 6-month price trend is progressively turning neutral and the elevated yearly volatility level combined with a down-trending 7-period moving average are strong indicators that should prevent any significant uptrend in gold as already proposed in our previous gold price scenario from February 2018:

High Volatility will preclude any significant upside for the precious metals

One important aspect that must be clarified first: the yearly price trend is still pointing higher for both Gold and Silver, but the volatility (the spread between the lower and higher boundaries) is so high that it should preclude any significant upside for years to come. But instead with the Gold price capped below $1,370 (red segment) and a reverting 7-period moving average that could soon become another cap above prices the most likely direction for gold price is lower.

Under these premises we still believe that gold should once again fail to break its resistance to move above the $1,370 level. Instead the most probable outcome is for gold to weaken from there with the 20-period yearly moving average – presently sitting at $940 but rising – in sight.

Our previous prediction remains unchanged:

Conclusion:

The very long term (yearly) gold price trend is still bullish but the long term correction of the previous bull run is far from being over and should develop over the next couple of years. We expect to see $1,000 before we can see $2,000 again. The bear scenario will remain valid as long as the $1,270 level does not break.

Silver is still trending down and heavily capped

Silver still is in a down trend and capped by multiple resistances on the quarterly price chart and also on longer duration charts (6-month and year). When this situation was first highlighted in December 2017 Silver was priced $16.2:

Confirmation Trade for the Weakness of Gold and Silver:

This scenario will confirm the possibility for both Gold and Silver heading lower with Silver leading the move as long as the red descending resistance lines can hold the price of their respective precious metals:
Silver (XAGUSD) Price Chart – Year + 6-Month + Quarter
silver-Q-6M-Y

Silver is now priced $15 and has reached the initial target we had identified:

Bear case for silver:

An obvious target is for Silver price on the yearly chart to reach into the 20-period moving average at $14.7 possibly before breaking below it.

It is now dangerously flirting with this long term yearly support and it remains to be seen if it may be supported above this level, what we believe is not the most probable outcome but expect instead to see the Silver price reeling significantly lower.

It would take a decisive break of $16.5 on the 6-month duration chart to invalidate the bearish silver case.

Gold-to-Silver Ratio Predicating More Precious Metals Weakness

The bull trend on the Gold/Silver ratio was originally proposed in September 2017 when it was 76 and a reinforcement of the bull trend was suggested in December 2017 when it was 78.

Gold/Silver Price Ratio – Year + 6-Month + Quarter
gold2silver-Q-6M-Y

Twenty one months later the ratio now stands at 89 and a breakout is taking shape on the yearly time scale that portends more strength to come for the ratio and an associated weakness of the precious metals.

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