GOLD DECEMBER CONTRACT - GCZ16
My current target for buying gold is at $1,225 but this chart (December contract) has me a bit nervous. I love the way gold gapped up so strongly on June 3rd (jobs report Friday) but what makes me nervous is how worn out this zone is getting. As you can see from the daily chart, price has spent a lot of time in this area and it is easy to imagine gold getting through and heading back to prices last seen in early 2016 ($1135 for me). I always see a chart like this as a boxer who has taken 25 solid jabs. Sure he is still standing, but every jab makes the next punch more likely to take him down. It was easy to buy this level after you just confirmed gold is headed higher or on a 5% pullback; this time it will be on an ugly 10+% pullback. We may find less excited buyers here this time. I think the way to play this is to go long in this area expecting a bounce but keeping a stop just beneath this zone and moving it up if price bounces, in case it fizzles and heads back lower. If we move out of this zone and I make money and get stopped out before a retest, I will not go long here again. The dollar is in the driver's seat right now for gold and everything else, which I covered here, and it just got more interesting.
The dollar blasted above its 200 day this week and blew through and closed above the trend line I have, looking very bullish. On Friday however, as you can see, the $DXY closed red just beneath that trend line. This makes for a very important upcoming week for the dollar. I still believe we will move higher, up past the 98 level, and with that we will see gold move into the June lows if not down to February.
BONUS CHART: SILVER DECEMBER CONTRACT - SIZ16
Silver looks much more attractive at its June 3rd area. I will buy at $16.75 anticipating a bounce out of the zone I have drawn out. Silver has a great base between a couple rallies and this zone was not jabbed to death like gold. Seeing a much stronger zone for support for silver than gold leads me to an obvious conclusion: the gold to silver ratio is about to break down. As you can see below, the gold to silver ratio has been in a steady uptrend in a well-behaved channel. I expect this trend line to break and the ratio to fall from the 70s to at least the mid 60s.
GOLD TO SILVER RATIO - 10 YEAR CHART