Recently, I was looking for my school notes amongst my old stuff for my eldest daughter to help her understand chemistry as my school teacher was a real fanatic on this subject. During the process, I found many things with memories from my youth, and it prompted me to call my old friends and discuss those handwritten letters that we used to send by messenger. We couldn’t have ever imagined that the digital era would come.
Quite often things from the past can help us today. I decided to dig deep into the past on the gold chart to understand what is happening with our frozen gold market these days. Bingo! He who seeks shall find.
Below is the chart with my annotations to illustrate the findings.
Chart. Gold Quarterly (Logarithmic): This “Vinyl” Could Play Again
Chart courtesy of stooq.com
First of all, I would like you to pay attention to the word “Logarithmic” in the chart title, which is usually abbreviated as “Log” in the chart options. It means that the Y-axis of the chart has log scale, which is nonlinear and commonly used for the broad range of the data.
Indeed, gold has the wide range of the price data as it was very volatile between really low digits above $200 per troy oz and the one thousand in the distant 80’s. That’s why the right step was to switch to the log chart, which I usually avoid for the short-term chart as linear scale gives more price accuracy when we build the trends. So what changed when I pushed the “log” button? You can see the outcome in the chart above; the old consolidation grew in size as before on linear scale it looked negligible as the lower numerical order digit on the linear range is very small.
This approach lets me have a good look at the chart structure of the previous consolidation (blue box) as it now shows up like an elephant compared to the current consolidation (orange box). This finding gives us several clues for further market behavior. And I would like to start from the straight one.
As I mentioned above, the current consolidation on the log scale looks much smaller than the earlier one. For me, it means that the next move up will be much smaller on the log chart and most probably it would finish the uptrend as the power of the trend would get exhausted based on the amplitude of today’s consolidation. Again, the growth could be quite big on the linear scale in simple digits, but the growth structure will be relatively smaller than what we had before the current consolidation.
Another discovery has yet to be proven by the time as we now have similarity between the first halves of both boxes. Let us go inch by inch. At the start of each box, we have a down-up-down zigzag, which brought prices down heavily from the tops. As it is a complex correction, then we should have a junction (counter-trend correction) between the two downside zigzags; it emerged in both boxes (green smile). I highlighted with the black down arrow our current position from the orange box in the blue box for you.
Loading ...It looks like we are approaching the highest point in the counter-trend correction (green smile). You can see for yourselves that the second zigzag of it is also lower than the first one in both boxes, amazing! Although the weekend missile strikes in the Middle East could push the price beyond the previous top at the $1375.
What’s next? If this similarity persists, then we should expect another zigzag down as highlighted with the red curved arrow. In the blue box, it hit slightly below the previous low ($250 level vs. $280 level or 11% lower). In the current orange box, we could see the dip below the crucial $1000 in the $900 area.
In this post, I highlighted the chart structure without examining the price levels as I told you before that if we can detect the structure accurately, then we could get ready for the next step of the market, which is more important for strategic positioning. Let us see if these old “vinyl records” play again.
Loading ...Intelligent trades!
Aibek Burabayev
INO.com Contributor, Metals
Disclosure: This contributor has no positions in any stocks mentioned in this article. This article is the opinion of the contributor themselves. The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. This contributor is not receiving compensation (other than from INO.com) for their opinion.
Dear Aibek,
Thank you for your comments. It is nice to get feedback from you.
I will go along with you for the most part. I also have my idea/projection/guess that the recent little pull backs in the metals are just the breathing room to resume further upwards. This year will most likely be the most volatile year we have had in many years. I think there will be fake outs in both directions going up and coming down. We hit a high in 2011 in the metals and then turned to a bear market until Dec 2015. I believe that was the major turning point for the new bull market in commodities. Jan 2016 had some great energy moving upwards until Aug/Sept then pulled back but not hitting below the lows of Jan 2016. Many of the mining stocks I follow are still up many fold.
I guess we will have to wait for gold to surpass the $1375 oz to $1400 oz with strength before we really know for sure if the path is upwards or not.
To own gold is more for insurance on the stocks people hold in the market and/or unplanned disasters. Silver will be used more for your daily transactions such as what is is happening to the people in Valenzuela today. Such as an one oz silver coin will buy food for one person for 6 months. We could see that happen in other parts of the world before it really starts to affect us here in America. Remember if the price of gasoline goes up precious metals will follow. We've had many years of low prices at the pump but they have been increasing.
It will be interesting to watch in the days ahead how the precious metals unfold.
Thank you for your comments, they do hold good value and meaning.
God bless, -Larry
Dear Larry, God bless you too!
Thanks for sharing another valuable insight with all of us here.
Best regards, Aibek.
Aibek, Am I able to copy and paste a chart for you? I just looked at VALE on a Quarterly chart with Max yrs and it looks like the same type of chart pattern you show corresponding the Q2 2008 w/ Q1 1980 and Q4 1987 w/ Q1 2011 then descending to Q1 2016. Today it is up in Q1 2018, a terrific bowl shape if I ever saw one with Jan 2016 being at the bottom! https://www.barchart.com/stocks/quotes/VALE/interactive-chart This shows what is happening past the chart you are projecting for the future. It is already happening. I see it as a Bull Market for the metals. Does this make sense? Like to hear your thoughts.
Thank you for having patience with me,
-Larry
Vale S.A. (VALE)
13.86 -0.14 (-1.00%) 10:30 ET [NYSE]
13.85 x 9200 13.86 x 5100
Realtime by (BATS)
Interactive Chart for Fri, Apr 27th, 2018
Dear Larry,
I looked into VALE chart for you. I put it into log mode. Click on the link below.
https://www.tradingview.com/x/4vFTYZqU/
It looks more like current orange box now and I highlighted it the same.
I added the zigzag for you to see what trajectory I see now. We are in the same junction now.
Another drop could follow then.
Thank you for reading me. Best regards, Aibek
Thank you Aibek, I see what what you mean with your chart. Your drawing also shows a head and shoulders for further lows. UGH!!! If it continues to play out as you say, then we play it in that manner and make a few bucks along the way. It is to hard to play against the trend.
You are very insightful with your drawings and projections.
I have enjoyed reading your article and your comments!
God bless, -Larry
Your green and red lines inside your Red Box are not in the same position as in the Blue Box. Move your two projections to the left by three years+/- and you will see the high in 2016 is where you red line should match up with your Blue Box. From Dec 2015 gold hit the bear market bottom and has since continued to move upward....not down as you have projected. The commodities across the board have all moved up in the past 2+ years. In your projection they should have already been moving down. The DOW will hit new highs this year as well as precious metals etc.
The survey shows people not believing what they see either. The majority say the two boxes do look similar but then the majority say they don't believe gold will fall below $1,000. That kind of contradicts each other don't you think?
On average the cost of mining gold is above $1,000 oz. Why would a miner mine gold if you are only going to loose? Mining will stop and the metal scarcity will cause the price to increase, right? The miners will stop mining to help put a freeze on the price drop. NO, I don't think gold will fall to $1,000 oz. Today's prices on all commodities are an excellent buy including oil!
Dear Larry,
First of all, let me express my gratitude for sharing your valuable opinion in this extended comment. Every time, when the other person shares not only his/her thought but most valuable - time, I am really happy to realize that someone stopped his/her world to share with us/me.
I put my answers into brackets.
Your green and red lines inside your Red Box are not in the same position as in the Blue Box. Move your two projections to the left by three years+/- and you will see the high in 2016 is where you red line should match up with your Blue Box.
(I highlighted market moves as per my vision of structures. After zigzag down in both boxes there is another zigzag of the consolidation/junction. In the orange box it is yet to be completed).
From Dec 2015 gold hit the bear market bottom and has since continued to move upward....not down as you have projected. The commodities across the board have all moved up in the past 2+ years. In your projection they should have already been moving down.
(In my projection there is still room for the market to tag the previous top (1375)).
The DOW will hit new highs this year as well as precious metals etc.
(Agree about stocks. I told about it in my S&P 500 chart at the following link http://quotes.ino.com/img/sites/ino/email/9379.jpg)
The survey shows people not believing what they see either. The majority say the two boxes do look similar but then the majority say they don't believe gold will fall below $1,000. That kind of contradicts each other don't you think?
(I think that's ok as there are two separate questions. People really see the similarity, which is a historical and more or less objective BUT they don't agree with the projection and that is also normal as this is an outlook/forecast/guess and it could hit either side as nobody knows the future. Readers share their outlook - they don't see gold below $1000, nothing more or less than that. As I wrote in the beginning of the post - who could tell us that handwritten letters will be replaced by instant digital typing.)
On average the cost of mining gold is above $1,000 oz.
(It depends on the region. It could be even $600-$700 in the countries where the local currencies are weakening).
Why would a miner mine gold if you are only going to loose? Mining will stop and the metal scarcity will cause the price to increase, right? The miners will stop mining to help put a freeze on the price drop. (It also depends on the type of mine. I worked for the company that couldn't stop mining for the long period as internal waters in the mountain were eroding it and the longer was the period of extraction the higher was the risk of collapse and the total loss. Another factor - government could void miner's licence if he wouldn't complete project on time. Bankers accrue interest on financing every day...time is ticking against you.).
NO, I don't think gold will fall to $1,000 oz. (I respect your opinion.)
Today's prices on all commodities are an excellent buy including oil! (Thanks for sharing your forecast. Live and see.)
Best regards, Aibek
really, this is your analysis.