by Peter Schiff, Schiff Gold:
Gold looked very strong through mid-November. Recent trends in September and October had been pointing to a breakout. The market delivered sending gold up through $1870. Unfortunately, hard resistance kept the bulls in check, despite repeated attempts to breakthrough. The previous price analysis presumed that a Brainard nomination at the Fed would be the catalyst needed to break through $1880. It also assumed that a Powell nomination, though expected, would bring gold back down some.
TRUTH LIVES on at https://sgtreport.tv/
Unfortunately, the gold market took the Powell news harder than expected. It dropped like a rock. The announcement occurred prior to market open which is when liquidity is lighter. This caused the price to fall quickly. Newly formed and fragile support was shattered and by the time the market opened, gold was falling quickly. Eventually, it settled back into the $1750-$1800 range where it has been trapped for months.
Late this week, gold made another attempt to break through but failed to hold gains in the face of a rising dollar and closed the week just a shade under $1800 at $1798 (note: official Comex close was $1804). Will gold regain its footing and finally put $1800 in the rearview mirror or will it stay range-bound in the near term?
Current charts are fairly neutral. This could be the quiet before the storm really hits in 2022!
Resistance and Support
As mentioned, gold has been stuck around $1800 for months. A “buy the rumor sell the fact” unfolded this week as the Fed had its most hawkish meeting in years. Gold bounced hard off the $1750 area but has now gotten trapped at $1800. It needs to break through soon or will face selling pressure. Hedge Funds are driving the price, but will only make so many attempts before retreating and closing longs.
Silver is lagging gold and is at the lower end of the consolidation pattern between $22 and $25. The current downside looks limited, but there is nothing that is showing strength. Aside from a sharp rebound off the Fed meeting. The market must build on this move or see the gains lost.
Figure: 1 Gold and Silver Price Action
Daily Moving Averages (DMA)
A golden cross formed on Dec 3 as the 50 DMA crossed above the 200 DMA. While this is technically bullish, it lacks conviction. The chart below also shows the current range-bound period. The blue and green lines haven’t been this close for this long since 2014. At the time, gold was consolidating from a big down move before another leg lower. It’s possible the opposite is occurring now (consolidation before an up move) but needs confirmation.
Outlook: Slightly Bullish
Figure: 2 Gold 50/200 DMA
Silver has an uglier chart. The 50 DMA is still trapped well below the 200 DMA. The 200 DMA is now following the 50 DMA lower, which is not usually a good sign based on history (2011, 2013, 2014, and 2017).
Figure: 3 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.
Traders got excited about gold, but then bailed at the first sign of trouble. Now open interest sits at the lower range compared to recent history. This would indicate there are more longs on the sidelines waiting for the right moment to jump in.
Outlook: Bullish, if gold regains momentum traders will be ready to follow
Figure: 4 Gold Price vs Open Interest
Silver open interest is much lower than its recent history. Some of this is due to the higher price. The chart below has been modified to show notional open interest (accounts for price). As shown, it’s hovering right around the 4-year average but well below the more recent average. Based on the pattern, it looks more likely the market sees an increase in OI that could push the price higher.