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Another pullback opportunity for the bulls?

Jonathan Da Silva

Kitco Commentaries | Opinions, Ideas and Markets Talk

Featuring views and opinions written by market professionals, not staff journalists.

Commentaries & Views

Is this it for the dip in metals? On Friday, we suggested that pullbacks may continue to be shallow. Since gold hit exactly $1810 on spot Sunday evening (making another higher high), the pullback has manifested. For traders who took profits over $1800, this may be your chance to swoop back in. If the sell down continues, however, bulls should hold the $1750 level, or better and more precisely, $1762ish on spot. The below is a 4-hour gold chart demonstrating oversold momentum in a newly established (continued assumption) upward trend. Momentum should begin to come out of the oversold condition while the price continues the pattern of higher highs.

In early October, when we suggested the bottom was in for the stock market, having pointed to the SPY as a proxy, we suggested a specific downside gap would need to be filled on the way back up. In the daily chart below, that gap is pointed out with the green arrow. Last week, we also suggested that taking profits in stock positions would not be wrong. Stocks have since begun their retracement; the most obvious spot for a bottom would be the wide-open upside gap represented by the red arrow. Note that the bottom of the gap corresponds to the bottom range of daily Bollinger bands. Momentum is almost already reaching into oversold conditions as well- and if the rally is to continue, it should pop back up with prices on the way to another high.

We like to keep a long-term perspective by looking at the below monthly chart of the US 10-year bond yield. The last time relative strength stretched toward the 80 level was in the spring of 1980. Are rates ready to start coming down as the economy heads into recession? The current setup remains conducive to that outcome, even if a negative divergence between the rate and relative strength needs to manifest (as it did in the DXY) first.

Thanks and have a great week.

By Jonathan Da Silva

Contributing to kitco.com

Contact jdasilva@kitco.com
Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.