A Chart Walk into the Future - Omar Ayales
Published on August 23, 2017
00:00:07 Those of you who don't know me, my name is Omar Ayales. I am Editor and Chief Trading Strategist of Gold Charts R Us. It is a weekly trading service, part of the Aiden Research of Newsletters.
00:00:21 And giving our theme today and in this conference, I think a lot of you are going to be very excited with what I have to say.
00:00:33 We're living very exciting times for the metals and mining as at the end of cyclical bear market and precious metals is in sight. Years of strengthening inflationary forces have been putting downward pressure on the metals.
00:00:44 Slack and global demand have made a sluggish recovery from the crash of 08, which was partly at fault. A growth of a giant commodity eating monster that was China was moderating and so was it needs for commodities and metals.
00:00:57 The overall leveraged world we live in had fallen into unsustainable levels of growth and production. Interest rates were slashed and unprecedented amount of quantitative easing was injected into the economy.
00:01:10 The euro was starting to show cracks at its foundation. Greece was on the verge of leaving the Union. Fear and uncertainty were at a high when Gold peaked in September of 2011.
00:01:22 Interestingly a spiral towards inflation would start at that moment that would last several years. Intensifying deflationary forces, fuelled a liquidity crisis pushing the dollar up as a world sought cash, particularly in Federal Reserve notes.
00:01:41 The dollar started a bullish rise towards the end of 2011 and has been king ever since; however, the dollar has been declined since it peaked in January 2017 and the dollar is now showing signs of a major turn around and so are deflationary forces as inflation is finally starting to pick up.
00:02:00 And with Mr. Trump throwing the dollar under the Bus every time he can, we could be at the onset of the end of King Dollar status. This brings me to my first chart which is the dollar since 2011.
00:02:14 You can see at September 2011, when gold peaked the US dollar has been up trending. Back in April 2014 it basically raised almost like a blow off and eventually entered a sideways band between the higher area around the 100, 102, and the lower area between 93 and 94.
00:02:40 Just a couple weeks ago the dollar broke the low at 2014 up trend which has been key. I am sorry my pointer is not working very well; or at all. So, you see the break. This break is telling us that the dollar could be at the turnaround of its low margin that started in 2011 and intensified in 2014.
00:03:04 Basically our first target for the dollar is going to be the 93 - 50 level and the second target is going to be this uptrend since September 2011.
00:03:14 If this level is broken then it's going to sink the dollar further to this level and possible even lower. Like I said, a reversal, this peak marks a potential trend reversal for the dollar.
00:03:27 Why is this important? As many of you might know, the gold and the dollar tend to move in opposite directions. You can see this chart, shows gold and the dollar since 1972 ever since Nixon unpegged the dollar to gold.
00:03:47 You can see that ever since that time the dollar has been down trending, gold has been up trending, with the exception of certain circumstances in which they have moved together the trend is clear.
00:04:00 So basically the dollar with its fall, its recent fall which in this chart you'll not going to be able to see because of course it is a forty-year chart. With this turn around and this turnaround it's basically telling us that gold could be at the right moment not only to buy gold but the junior, the miners as well. Especially the miners.
00:04:24 Interestingly we are seeing the dollar development before our very eyes and obviously as it breaks down to support level it's telling us it's week, but really, the long-term yield and the US bond has been telling us all along the story.
00:04:47 So, you see this chart is from 1945, it's a thirty-year yield in the US bond. You can see that it has been rising similar to gold. Gold has been rising with interest rates ever since 1945 until it peaked in 1981.
00:05:03 Since then, World Central Bankers were proud to say they had incurred inflation. Ever since that moment, inflation peaked with interest rates and inflation started to decline, as did interest rates.
00:05:18 It broke, it must have been around 1995 it broke with all this moving average that we followed this trend. This eighteen month moving average and ever since you see it has been resisting right at it. It has not risen above it showing that inflation has consistently been falling.
00:05:37 Little did anybody know that that fall in inflation would eventually turn into deflationary spiral which would basically push the dollar up as we saw since 2011 and push gold down ever since the peak of 2011.
00:05:53 Now, we are actually starting to see a change in dynamics. So, if you see this next chart, we are seeing basically golds bear market since 2011. So, you can see this big trend since 2011 gold has been existing at this level.
00:06:14 Ever since gold peaked it went into a sideways band for about two years before it then finally broke a peak support level of 1536 and went into a downward spiral. This basically was with deflationary forces if you remember well, were tightening.
00:06:35 This is also the period where the dollar rose sharply. Coincidentally the low coincided with the first rate hike by the federal reserve back in December 2015. This marked basically the low and the reason that's important is because the height of the interest rate by the FED basically signals that all of a sudden, we have a turn around with inflation. Inflation is starting to creep back upward.
00:07:06 Gold went to rise, reaching this critical resistance level only to fall back down and where did it fall? December 2016 when the FED raised rates for the second time in a decade.
00:07:22 Basically those two FED heights have been creating a foundation for gold to move up. I believe this little low right here, which I'm signalling right now is March that was coincidentally the other FED hike this year, in March 2017.
00:07:39 And then it rose and resisted and then it fell and it held. This little up move is from this past month which has been actually a very bullish month for gold.
00:07:52 So, where do we go from here? What does this tell us, is it going to break above this resistance? If it is going to resist it is going to fall down, what is going to happen?
00:08:04 We call this chart the ABCD's of gold and it's going to give us a little insight as to what might happen to gold, moving forward. The ABCD's of gold is an indicator that at the Inner Research Group we have been developing for the past thirty five years.
00:08:19 We sounds like a lot of people because I'm thirty seven, but somebody at the Inner Research group has been developing this chart for the past thirty five years and it basically marks the different rises and the declines of gold in a particular year.
00:08:37 When you see, A rises, tends to be moderate rises. B declines tends to be moderate declines. C rises, are the strongest rise within a particular ABCD cycle and D declines tend to be sharper declines in also the ABCD D cycle.
00:08:55 If you see this B decline back in 2015 this chart is from 2014. But this decline since 2015 which was when the FED hike rates, you see that the B decline overshot the D decline, something which is not very typical.
00:09:12 This extreme weakness told us that there was a trend reversal in play, ever since, started rising. We saw, many of you might remember, it might have been very profitable for you back in the early months of 2016 when gold broke out and rose strongly until about the BREXIT, into about 1380 and then it declined, in a D decline fashion, again creating this, what we just saw already this support level.
00:09:46 Gold then rose, had a moderate rise, recently which is this A rise and has declined since and actually what is interesting is even though gold has been very strong this past month, B decline pressure is still in play.
00:10:03 Our indicator which is a series of moving averages that tells us momentum over a period of time, medium term is telling us that we could actually still see the B decline fall according to our analysis the B decline would be over as soon as gold rises above its previous A peak.
00:10:26 In this case it's about 1300, 1305, 1300. So as long as gold does not break above this 1300 level, which coincidentally also is this down trend, we are going to see down side pressure in gold.
00:10:47 What everybody is seeing and what we've both been happening and during May everybody's excited we want to buy and want to be in this bullish market. And everybody wants to be in it of course, right?
00:10:58 However, I also tell our subscribers, don't be the hero don't buy in the middle of a rise, when there is still some down side pressure there. Wait until this 1500 level breaks or it falls. Actually, our B decline support level is right here. Which is getting close to about 1200, it's about 1190, 1200, which will be an ideal place the buy.
00:11:24 This other moving average that you see is a twenty three month moving average, it's currently is at 1213 has proven to be also a place where gold likes support and has support.
00:11:36 However, this uptrend on this twenty two month domain are very likely going to meet, near term and if gold fails to break above the 1300 it is very likely that it will give us another opportunity to buy at this level.
00:11:53 Gold of course is a great investment, it has great potential for upside we just are at the onset of a C rise which can basically see gold rise to about 1300. The first resistance if it breaks above that level we could see it go 215, 36, which used to be a key support level back when the bear market started.
00:12:20 But of course the greater opportunity within the Gold universe lies in gold shares.
00:12:26 If you see this chart, this chart is showing gold shares since 1968 and basically this is the Barron's Gold Mining Index and the reason we use this is because that's the index we have the most data from going back.
00:12:38 So you see this uptrend how it’s fluctuated and basically this channel has been pretty constant over the past almost fifty or fifty years. You see how gold share has declined sharply. Actually, the lower the bottom side of this channel has sprung upward showing us that every single time or the past couple times it has reached this uptrend it has gone and risen to this top channel.
00:13:10 The potential for gold shares to reach this top channel is very high, it's very likely. Given where it is right now.
00:13:22 Also this other chart shows gold shares to gold ration. This has been charted since 1971. This charter clearly shows that gold has been stronger than gold shares since 1971 on a mega trend base of course, during those times, gold shares have outperformed gold on different occasions.
00:13:50 At this point the reason why we like this chart a lot is because we see that actually gold shares have declined extremely low and are starting to bounce up. The potential for gold shares to actually reach this down trend is high and it may not even change the trend between gold and gold shares, that relationships could see maintain down trending but the point here is, that we actually have a lot of upside potential.
00:14:16 Looking at a closer look at the HUI, we analysis in our services price movement, very closely. So technical analysis is one of our good friends. We don't rely completely on technical analysis but it is a science that allows us to identify specific price points, targets, and entry levels.
00:14:41 This chart of 2015 shows the HUI Gold Bug index so you see the HUI had a strong support level of around 170 2005, 2008 it reached, it broke the lowest at the height of the gold's current bear market.
00:15:04 However, it had jumped up to this level, come back down and once again it's on the upside. However, what I want to show you on this chart is what we call a head and shoulders bottom. You have the left shoulder right here. Head and shoulder bottoms usually come up after a major rise such as this and it is a bullish pattern. This is telling us, this kind of shows us.
00:15:35 If gold breaks above this neck line resistance which is the previous August high which is 280 I believe on the HUI, we can actually see HUI shoot up to about 250. This is a very key level to keep in mind.
00:15:54 This chart of course is very bullish for gold shares. This other chart is also very interesting.
00:16:04 We're actually comparing in this chart bear markets turning bullish within gold shares. So, if we see the last time we actually saw gold shares coming out of a bear market was basically from June 1996 to June 2003. That's the blue line, that's the movement of the HUI.
00:16:25 And then if we actually get basically from the bear market in 2011 to today and we end it at 200 so they both start at the same level you can see that the movements have been eerily similar.
00:16:44 At this level, this juncture where we are right now, basically you saw that on the blue line there was and this was around year five of coming out of the bear market, you can see a consolidation that eventually broke up.
00:17:00 Right now, you can see the red line and we are exactly at this point. Although of course this chart can't tell us that gold shares are going to rise this much, can't guarantee it of course, the resemblance between bear markets emerging from a bear market into a principal market are crazily similar.
00:17:22 Interestingly within gold shares the Junior Gold Mining shares are usually the ones that tend to outperform the seniors especially when gold is in a bull market. So, you can see this up trend since 2015 since gold had its first sign of a turn around.
00:17:49 You can see that the junior index has been outperforming the seniors. This basic line, as many of you probably lived it in one way or another, it is a recent decline coincided with the indexing issue of the GDXJ and an appetite for senior gold mining.
00:18:11 This of course fell, the ratio fell, and it's actually nearing this report, this uptrend. But we have a C rise about to start in gold and we have junior gold miners that actually tend to outperform seniors during gold bull markets. We are actually seeing them, we are actually getting closer to this apex.
00:18:34 Definitely junior gold mining is the place you want to be. That's going to present the best opportunities moving forward for 2017 and possibly for the next year. There are a series of junior bull miners that we follow, however, we also like the indexes.
00:18:50 The GDXJ has had its indexing issue, it's still like it, but if you don't want to mess with that we also recommend the index for older SGDJ which is the junior minor index that's brought managers. It represents the sector very accurately and if you want to stay away from GDXJ because of the issue they've had recently that's basically one good index you could follow.
00:19:21 We also like the BTG we like MUX. BTG in Toronto is a BTO.EO MUX which is McEwan mining is MUX same in Toronto, same in New York we have other silver ones as well.
00:19:41 We have some time, I have two other charts, that's it. Well thank you very much, if you have any questions, I think my time is up but I will be more than happy to talk to you right after this and I could discuss any other issues. Thank you.