Price Analysis Shows Bearish Indicators but Exhaustion may be Near

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by Peter Schiff, Schiff Gold:

Gold

One of the major technical indicators is the 50 Day Moving Average (DMA) vs the 200 DMA. As the chart below shows, the gold 50 DMA had passed through the 200 DMA in June. This is referred to as a Golden Cross and can be a very bullish indicator. Unfortunately, it was quickly followed by the reverse known as a Death Cross, a very bearish indicator, which failed to confirm the bullish positioning.

As of this week, the 50 DMA is still trending below the 200 DMA. That being said, it is staying close. It is positioned to reverse quickly with only little support needed.

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Outlook: Bearish but could reverse quickly

Figure: 1 Gold 50/200 DMA

Silver

Silver had the bullish trend negated last month as the 50 DMA moved down through the 200 DMA. This occurred in 2019 and 2020. Both bearish moves were quickly followed by strong rallies. Will it happen for a third time? Maybe, but the move through has been rapid and steep. It’s possible silver selling is reaching exhaustion, but for now, the chart looks bearish.

Outlook: Bearish

Figure: 2 Silver 50/200 DMA

Comex Open Interest

The two charts below show the open interest compared to the price in both gold and silver. The overlap is not perfect, but major moves in one generally occur in tandem with the other as speculators push and pull the price around with paper contracts.

Gold

In the latest price drop, shrinking Open Interest actually preceded the price move down. Open Interest peaked at 517k on July 26 before bottoming at 475k. Open interest is currently sitting at 494k, above the 475k low in late July but the gold price is actually lower. Either open interest should fall further or the price could recover. Considering how low open interest already is, it seems like a price increase may be more likely.

Outlook: Cautiously Bullish

Figure: 3 Gold Price vs Open Interest

Silver

Silver open interest has collapsed to the lowest level since the massive spike down last March. This September, it bottomed at 139k contracts before rising back to 145k currently. The chart below shows a 12-year view. It shows the extent to which open interest has come down in the most recent fall. Excluding the brief sell-off last year, this is the lowest open interest since 2014.

Although this gives an initial bearish impression. This chart looks more like exhaustion as sentiment is hitting multi-year lows.

Outlook: Cautiously bullish

Figure: 4 Silver Price vs Open Interest

To evaluate the true relationship of Open Interest and price action, the table below calculates the correlation between the two. The methodology takes the percentage change over a specific period and then calculates a correlation across multiple periods between the two variables.

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