The situation is paradoxical – gold and silver have broken out upside despite already extreme COT readings, yet the dollar has still not broken down. This setup continues to warrant caution, yet if the dollar should break down from its potential top area and drop hard, gold and silver will go into a vertical meltup – and here we should not forget the tight physical supply situation. In the last update, we expected gold and silver to drop due to the COTs extremes, but they have done the opposite resulting in even greater extremes, which in silver’s case are “off the scale”.

On gold’s 1-year chart we can see that after a two-month trading range, gold has at last broken out upside from it, and appears to be starting another upleg, although the large gap between the moving averages and the COT extremes give cause for concern. Momentum (MACD) has taken a sharp upward break from a low level and looks positive.

Gold and Silver Melt-Up?, 5/4/16

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