|
Questions or comments? Contact us at goldtrends@gmail.com
Long term gold investor
|
FOR THE LONG TERM INVESTORThe opinion expressed in these reports are the conclusions of the author. The information provided was researched carefully, but we cannot guarantee its total accuracy. The report is published for general information and does not address or have purpose or regard to advise specific investments to anyone in the general public. Rather it provides an individual’s perspective of such markets. Its content does not recommend any specific investment advice to anyone nor should there be any inferred.
Gold Monthly Edition January (January 4 2010) "A new decade in the 21st Century Gold bull market"
Gold has no doubt been the go to commodity during the first decade of the 21st century beating out all other major investment vehicles for the decade and for all of 2009. It was the decade where the United States went too far with its borrowing and spending. Similar to the 60's and the Vietnam war and social programs, times have now changed where the US has basically run out of room to borrow. Back then, the borrowing binge escalation was just beginning. There have been a lot of discussion of the inflation scenario that this run on the printing press is for the most part the end of the system of things and a great deleverage is going to engulf the global economy. But the press is on wide open as the powers that be will do all they can to continue the expansion of debt at the expense of everything else. You have to love the expressions that are used to put the situation in it's best foot forward. Quantitive easing means dropping the value of purchasing power for the fiat currencies................and dilution is the word used for the issue of shares of stock to "raise capital." That is why when we look at the stock market returns the "lost decade"' of Japan comes to mind. For all its fits and starts, stocks are pretty much where they left off the last turn of a decade. Gold stocks however, are up an amazing 8 times when measured in the HUI and gold itself has increased 4 1/2 fold from its low $251. December was an interesting month where all of the talk of shortages, tungsten bar and the myriad of other bullish fundamentals were put aside for a pullback correction. When gold is viewed on a monthly basis, December was nothing more than a pullback in a long term trend. To put December in perspective, lets take a look at the chart. In the chart below, we can see the 21st Gold Bull Market in its entirety. From the volume spike way back on 9/11/01 (a spike that took 4 years to match) the gold market has embarked on a very powerful bull leg. The run up into 2006 took about a year and a half for the market to digest before another leg up transpired, and the run up to 2008 took about a year and a half for the market to digest before this most recent leg up began. The late 2005 to 2006 gold run was good for about 300 dollars from its breakout as did the late 2007 run and the latest 2009 run. Since the September lows, the run up has been about 300 dollars. The upper RED channel line has been the area where all previous rallies ended and corrections/consolidations for well over a year took place. This cycle of events .........long sideways pattern and then spurts of growth has been how gold keeps the majority out of the long term bull market. It almost seems like the market wants it that way too.
The most significant event of course has been the gold market finally breaching the 1000 level on a monthly, yearly and now decade closing basis. The question going forward is how gold is going to act now that the latest breakout is under way. First lets look at the upper red channel line. 2003 is a great example that shows how gold's price followed the upper line for almost a year before an almost 1 1/2 year sideways pattern developed. The rally to the upper line in 2006 was a one month blow off affair and another 1 1/2 year sideways affair took place. Notice how each pullback affair eventually touched the bottom red channel line before its next blastoff. The next rally into 2008 was another touch the top red line affair. However this one touched the top channel for three months in a row before the pullback began, and even then, a reaction rally back up in June of 08 also reached the channel before the ensuing major correction took place. Thus there was about a 6 month period of churning that took place before the big pullback took place. This latest rally back to the red channel line now has us asking the following questions for 2010. 1) IS the rally over now that the top channel line has been hit? ANSWER: due to the big gains of 2009, it is possible that 2010 will consolidate. The key will be what gold can do at the 1200-1250 area during the winter rally. There is also the potential of a parabolic rise in gold to take place and the reason is twofold. First, any "event" that panic's the public any more than it already has could set off a run on gold. Second, because of the small universe for gold, (smaller than a Microsoft or Wal-mart) gold is one of the few items that could be wiped out on the demand side in a very short amount of time. We think the KEY THING TO WATCH IS THE UPPER CHANNEL LINE. Should gold climb back above the 1200-1250 area, the potential to move significantly higher can't be dismissed. We advocate the holding of at least core positions at all times. For those with limited funds, GDX offers a play in the major gold producers and GDJX offers a mix of junior mining stocks. Were there not so many scary issues, one would suspect that gold's upside would be limited in 2010. The problems that initiated the 2008 crash have not necessarily gone away and the bottom line is there seems no way the United States can pay back their debt. Its a two edged sword in that gold is the safe haven for a dollar devaluation, but it also could get hit during a credit contraction. It can get downright scary when one looks at the gold horizon. Here are a few other considerations. There are signs that the COMEX warehouses are having delivery problems and that physical gold is in shortage. Indeed the long term implications for gold are in its tight supply (that has been decreasing) and the potential for great investor demand. It is argued that gold doesn't pay interest...........well, neither do short term treasuries anymore. There was the story of Tungsten gold bars that hit..............that China, Russia, India, and a host of others were buying gold. BOTTOM LINE The upper channel line at the 1200-1250 area will be the PIVOT as to whether we consolidate during 2009 or go ballistic to the upside. Odds favor that 2010 will have difficulty exceeding the upper red trend line and holding above that area. However should gold begin to move higher we believe that if an explosion upward in price were to begin, it would begin from the vicinity of this upper red channel line. We'll look at the upper end of the channel line to provide resistance for the year .........and that suggests 1250-1450 as the upper target for 2010. Should we bust above the upper trend line in a panic mode, the potential for 2000 gold and a parabolic more up will come to the forefront. We will have more to say about the subject if it should develop. Until then, its more important for focus on the current goings on. 2) IS the pullback from the highs going to churn for a while or are we heading lower soon? ANSWER: The potential to trade in the 1050-1250 area for a few months this winter is a definite possibility for the first quarter 2010. We think the most likely scenario is a peak in mid winter and a pullback into spring. Because of the circumstances of world events, a major move higher in gold that continues this year is also a very possible scenario. Our PIVOT and measuring block will be the UPPER TREND LINES on the monthly and weekly charts. MOVES above those areas and we will entertain the potential of another melt up leg. The most likely thing we see right now would be for gold to mount a rally from either the 1075 area this year or the 975-1000 area. We think a move to the 200 day moving average this year would be a good opportunity to add to positions or initiate new ones. 3) Is it possible that the we are not going to go into a correction during 2010 and that the gold market has a lot higher to go before a correction takes place? ANSWER: Because of the extraordinary circumstances the possibility to melt up in gold is certainly a consideration. Because gold has broken to new highs and is trading above the breakout point, there is PRICE CONFIRMATION that such an event could take place. There are two ways to look at this current up leg.........one is that it is 13 months old from the low at 681 and the other is that it really just got going last September..............therefore, time should still be on its side. The most likely development is a mid winter high, a pullback to spring, a rally to memorial day, and a pullback to the July - September timeframe. This is what usually develops. Based on that seasonality, one wants to be light in gold stocks in late winter, and heavy in them during the mid summer. That is the ebb and flow of gold. 4) Is it possible that gold could move all the way back down to the lower red channel as it has on each occasion that the upper end has been hit ? ANSWER: Since it has done so all thru this bull market we should expect it to happen again. We should plan in a way that if it happens it is a buying opportunity and not the place where you receive a margin call. January Outlook: The most infamous January on record is the January 21, 1980 high at $875. We are approaching the 30th anniversary of that date and the reason we mention it tonight is to review the precedence for January peaks. Lets review the last 7 years as gold and January meet up. 2003 - The January peak at around 370 was only bested by a few dollars in February and remained a high point until the summer. 2004 - The January peak (achieved during the first week) had a pullback into late February and a burst higher in March that slightly exceeded the January highs and got totally erased in April. Price bottomed in the summer. 2005 - The January price in 2005 came off of an autumn correction from early November right thru the end of January. Price stayed virtually unchanged until the summer. 2006 - The January price in 2006 resulted in a rally from the beginning of the month till the end in 10% rally that year. Prices had been on a steady rise since August and after a consolidation in Feb and March near the peak January prices, gold moved higher into May of that year culminating in a nine month rally. A 15 month consolidation followed. 2007 - The January price of 2007 broke both the November and December lows only to close above both the November and December highs. Price stayed within a 10% range for the next 6 months until the summer then exploded higher. 2008 - The January price was straight up to months end in 2008. Price did not peak that year until March, about 8% higher than the January price. 2009 - The January price was coming off the crash low of 2008 and was straight up to months end in 2009. February turned out to be the high, about 8% higher. From there prices drifted lower until July.........and stayed in a tight range until August where the latest rally took off from. January Expectations: The January price is usually near the high end of the yearly range until Summer, but not always. It is a point where the majority of the rally is complete for the year. The rallies we've seen on the gold chart tend to last from 7 to 9 months from the take off point. We are only on month five. This suggests that this rally still has longer to go. Another very important aspect is the fact that the ONLY BIG CORRECTION that gold has experienced was during the crash of 2008 and the pullback from 2006. All other pullbacks from major highs been sideways affairs for the most part. Conclusions: Those who have no exposure to metals should consider buying a small portion here and during the coming correction into summer. IT is usually good to not be FULLY VESTED this time of the year in GOLD. Mid February/March is usually a good time to be lighter than heavier. Late summer is usually good to be heavy. From a yearly perspective: Considerations The lower red channel line is comes close to or gets hit once a year. While we can't be sure it will this year............. historical odds favor it can and does happen. Just look at the chart. Even a pullback to the 200 day average once per year should be expected. Odds favor it happening later this spring, but the point is this. Your BEST BUYS of the year should be near this area. If your long this market.................great, you should have a chance for more profits this winter. If your UNDERWEIGHT this market...........consider adding a little here and adding some at the 200 day average and some at the bottom of the red channel. The fundamentals for gold look spectacular and a melt-up situation is certainly possible. Odds favor however that pullbacks will still make up a portion of the gold market time. Those times are when you want to have cash available for purchase. GENERALLY SPEAKING --IDEAL PURCHASES ARE USUALLY DONE AT A FEW KEY PLACES: The 16 week moving average 35% of purchase buy. The 39 week moving average (200 day) 65% of purchase buy. Stops are usually employed at a few key places: The 45 week moving average the 64 week moving average Over the course of time, if you build up your gold purchases in this manner, your chances for success are pretty good.
======================================= Gold Monthly Edition December (December 8 2009) "The LAST REAL AMERICAN DOLLAR" Every now and then there are extraordinary events that occur that end up shaping the world for many years to come. The Lincoln and JFK assassinations come to mind. More recently, 39 years ago tonight (Dec 8 1980), John Lennon was gunned down in front of his own house. In many ways, the generation that grew up with him, grew up that night. As he eloquently put in in his post Beatles album, "The Dream is Over." For that generation it was. And what of JFK? That day in Dallas was in many ways where the changing of the guard that Kennedy inherited was circumvented. Indeed, one can only ponder had the "old guard" not regained control of the throne what the potential for this day and age might have been. And JFK was the first to be removed as there would be many from that generation. Now a lot has been written about JFK, good and bad, true and false, and the realm of conspiracy has been pondered by most who have done any study of the events. But that is not what this is about. This is about the last REAL AMERICAN MONEY. When one looks at real money, gold coins per se, it is hard not to notice the references to freedom and liberty. That is because "REAL MONEY" is freedom.............and liberty. It always has been, and it always will be. The truth be known, the modern route to slavery is through DEBT. Take a good look at this five dollar bill below. There is one thing that is different than any other bill you have seen in circulation. That difference when viewed in the lens of today has profound implications. Can you spot what the difference is? (It is not the red seal) Take a few moments before your read the answer below. Take a good look. What is different and what is the implication?
What many people don't know about JFK is that he was the last American President to print money that was NOT backed by the Federal Reserve. Let me repeat the last portion of the sentence. ..........MONEY THAT WAS NOT BACKED OR PRINTED BY THE FEDERAL RESERVE !!! What you are looking at is a "UNITED STATES NOTE" - So ordered by John F Kennedy, president of the United States. Look at the very top of the front of the bill, at the very top middle. See how it says "UNITED STATES NOTE" instead of "FEDERAL RESERVE NOTE" ? Constitutionally, JFK had this money printed. Every dollar printed by the FEDERAL RESERVE is unconstitutional. Only Government has the legal authority to coin legal tender money. The ramifications are too much for me to contemplate, but the bottom line is that JFK was issuing money (REMEMBER THE 2 DOLLAR SILVER CERTIFICATE BILL) that was either backed up by silver or in this case above, was not "BORROWED" from the Federal Reserve. Now if the Feds had gold to back up all that they would print it would be a different story. But they do not. It is often said that if you want to get on the trail of the truth in history, follow the money. While we will never know the entire details of the JFK assassination, I find it interesting that these bills were QUICKLY CANCELLED after his assassination and not issued ? Why ? One way or another, the Federal Reserve, the ones who are up to their necks in sharing the responsibility for the current collapse of the USA, regained "control" of the money supply with the elimination of JFK. That is a very big historical convenience wouldn't you say? The printing of UNITED STATES NOTES WOULD HAVE MEANT THAT THERE WOULD HAVE BEEN NO INTEREST RATE CHARGES TO THE US GOVERNMENT. It was their own money. How does the Fed print money out of thin air and then charge the USA interest? How does that work in our benefit? It doesn't. As hard as it is to believe, the American Dollar at a few points in our history, got HIJACKED. And then the final blow.................. When push came to shove in 1971, Richard Nixon closed the gold window forever. This became the point of LIFT OFF (INFLATION) FOR THE ENTIRE GLOBAL ECONOMY we know of today. In fact, the first place Nixon headed after the gold window closed was to CHINA................TO OPEN THE DOOR OF TRADE. It really was about minimizing inflation by transferring the manufacture of US goods at an extremely low labor cost point of manufacture. The rest is history. The USA's manufacturing base (the production of things) was basically transferred to China. Lets look at the change since then and see how gold has reacted. From August 1971 to January 1980 Gold moved from $42.50 per ounce to $875 -- 102 months (EST) From April 2001 to January 2009 Gold moved from $255 per ounce to $1227 -- 104 months (EST) Does history repeat ? Has it already repeated ?
The gold chart above is suggestive that we have arrived at a very important point on the price chart. The convergence of these channel lines suggest that the 1200-1400 area is the point where we have either reached a major high in gold and a good pullback is about to occur, or it is the point where a total melt up could develop from a gold perfect storm environment of currency collapse, war, and an inflationary spiral due to mass currency printing that engulfs the entire world? OR.................as the few (very few) lone voices tell us..............all this will not inflate things, it will deflate things. To which all of us laugh. (but a few of us ponder). A long term perspective to ponder................ US Dollar index December 1979 = 85 US Dollar index December 2009 = 76
There are a couple of ways of looking at the dollar and what it might mean. The dollar has only dropped 9 points since 1979 or about 10%. In thirty years, the dollar is only marginally lower. That is an incredible statistic. And what about 1980, what happened there. Interest rates were raised to 21%. That was some dollar rally. What else might we postulate ? That the real drop from all this printing has not even begun in the US Dollar ? The problem with looking at the dollar index is that it is measured against all other currencies. The dollar's 10% drop is because for the most part, the rest of the world is keeping up with USA's printing press. At least over the long run. But as we can see in 1980, who on this planet at the time that gold was 875 was forecasting that the US Dollar would climb from 85 to 165 ? Not many. A few? Sure. This is where we see the difference in the long term as gold investors. How can we value gold ? ========================================================== ========================================================== As we can see the difference is in purchasing power. We can buy a lot more for our gold today. The above example shows for the most part, we can buy things at about 1/2 the price of 40 years ago. Some things on the list are 1/4 the cost. Now the 64,000 dollar question. Based on purchasing power............... Is gold overpriced, underpriced, or just right ? Perspective is everything. One of the things we can be certain of is gold is in some way a "panic" or loss of faith instrument. It is certainly an "emotional" investment. In this current case, a loss of faith in the system of fiat currency and the debt that has ensnarled the globe is the main driver for gold. The assumption is that all of the financial incidents that are transpiring are INFLATIONARY down the road. We must admit, it is a UNIVERSAL opinion and the history of the dollar debasement is a hard argument to debate. Still, I always get uneasy when I am in a situation in the investment world that is universal.........if you know what I mean? The history of the USA and precious metals is a study in itself, and its not the first time that the government has fiddled with the "golden violin." Ever since the abandon of gold and the US Dollar float, an incredible and highly leveraged and complex global world economy has developed. It is a development that has been building up over the past forty years and from a long term perspective has reached a point where the leverage itself has become the single biggest danger to the growth and sustainability of economic development. To fathom there's 600 trillion dollars worth of derivatives out there is a testament to the height of this leveraged insanity. And that in essence is the problem.............."leveraged debt." New debt is backed by.............old debt. It must because debt is the only instrument we have for backing. During the 2008 meltdown, the real estate default was a major contributing factor. Now we hear nothing about it in media, we just see the for sale signs as we drive our cars. The commercial real estate market is nearing the point of "RESET" -- commercial loans have a much shorter maturity, and the default rate of mortgages themselves continue to grow at a faster rate. The next set of "MEDIA" event has been set off by the Dubai Default, and the news has quickly come to the forefront of the markets. Six banks were quietly closed in the USA. The FDIC IS BROKE. Just a few weeks ago, Japan printed some 10 trillion yen in order to provide another stimulus to an economy that is in the governments words..........still in deflation. This has been going on now for twenty years in this market. Greece and now Spain are being mentioned in the media. We're going from consumer bust, to institutional bust, and now we are nearing NATIONAL BUST. In an interesting twist, behind this cloud of toxic debt has been the accumulation of gold by China, India and a host of other nations. And the internet stories continue to grow. The mint is reporting a shortage of coins, and there's been stories about tungsten found in 400 ounce gold bars. The most interesting reports out there are stories in which the major shorts in the market are offering cash premiums to settle delivery contracts. Coupled with the price action of gold, it is difficult not to surmise a continued bull market in the metals. Don't all of these things indicate SUPPLY SHORTAGE DEAD AHEAD ? Throughout the year, I have postulated that as long as the debt melt down situation of 2008 does not return, that the metals should continue moving higher. This observation is based solely on what transpired in the markets of 2008 and there is always the potential that this time could be different.........but that is usually not the long term case in commodities. In 2008 the real selloff was not the FIRST default news, but the SECOND and THIRD. Is there a second story on the horizon? I do not portend to consider that I fully comprehend the machinations and complexities of the fundamental aspects of what is transpiring around the globe. I use it as a backdrop in trying to understand the aspects of what it does to market prices. During the last market melt-down the US Dollar was a benefactor. The chart clearly shows a rally of significance developed in July 2008 and the peak price in 2009 was right at the stock market bottom. Since that time, the US Dollar has been in a massive downtrend channel. Recently a very important point was touched on the US Dollar. A channel support line drawn off the last lows of 2008. This chart was included in our weekly update, and provided a break point of 74.00-74.25 for the US dollar. Since that low, we can see two things of importance. First that the area of support held, and since that time price has made its first attempt to break out of the downtrend channel. Price is now at a key MOVING AVERAGE on the chart for the first time in a year.
The 76.50-78.00 area is an important area for the US Dollar. If all they say about the carry trade is true, then the crowd that is in the US dollar are going to have to be very careful. If the players all start heading for the exit door at the same time, the dollar could become a local favorite for a short while here. So far, its only a lift and while the move is coming form a key area, it is only the first move that the dollar has been able to muster in a month. Should additional "DEFAULT EVENTS" begin to surface however, the potential for the dollar to rally into mid January becomes very real. Even on momentum alone, a further rise could set off a wave of buy stops. Those short the dollar should remain very cautious. Initial resistance would be the 78-80 area on a weekly basis. Even that type of rally would provide a window to see if all other markets will go in the other direction.....DOWN. IF THEY DO --- THEN THE SYSTEM REMAINS BROKEN AND FURTHER TROUBLE LIES AHEAD. In other words, if the financial world has come down the point that everything runs counter to the dollar -------------no matter what the instrument and fundamental is, then the investment world will remain a dangerous area prone to huge swings one way and then another without any fundamental consideration. It will all be dollar driven, and that is not a good thing. Investors need to be thinking in three timeframes. Short, medium, and long term. Over the short term, the potential for a dollar rally is one that we have been on the watch now for a few weeks, and we have either just witness our usual BLIP EVERY 2-3 weeks or so and price is about to turn right back down. However, should we move above the blue moving average on the chart, a potential rally to mid January could be in the cards. Over the medium term, the potential for a dollar rally we feel lies with the current low we just saw at the 74 area. Should the US Dollar not rally from this point...................and turn back down from here and close below the 74 area............I would anticipate a rather large drop to below the 70 area. In that event, the odds that gold would exceed the 1300-1400 area would be great. It will be important to watch the US dollar over the coming month. As long as it remains above the channel lines on the chart above, the potential for a rally will remain in play. The EURO also gave a confirming sell signal over the short and potentially the intermediate term. We anticipate that the month of December will be a month of consolidation. Odds favor a pullback/consolidation month and if aqua channel lines are taken out at the 1120 area, the potential area of 1070-1095 and/or the Monthly support of 1020-1030 would be targets. On the upside, the 1227 high we made is the odds favored high. Rallies should be contained in the 1203-1211 area. In sum, odds favor a range bound month in December. For now, the medium and long term trends of gold remain intact. We have a suspicion that one way or another, the 1250-1400 area is going to be a major point on the chart. Should gold exceed that area, we would think move towards $2000 would be in the cards. Until that time, we have to keep our mind open to change and to go with the price flows. =======================================================
Gold Monthly Edition November (November 1 2009) I can remember when Michael Landon (Bonanza/Little House on the Prairie) and more recently Patrick Swayze and Farah Fawcett, who both fought bravely in the face of the dreaded C word...........Cancer. Even some friends and acquaintances and yes, even my father became victims of this dreaded disease. The one thing they all had in common was their bravery and the belief that they could defeat this disease. And while they maintain this bold front, I can't help but wonder what they thought when they were alone? When talking with someone who has cancer, the dialog is intriguing in as much as when the person is telling you that they think their latest treatment was successful and they are not feeling any pain, we are very quick to embrace that thought along with them and the conversation stays very positive. But when we walk away, we come back to our senses and realize that their chance for survival at times is very slim. And we can' help but think about their condition and the conversation we just had. When they walk away, are they thinking the same as us........and that the conversation was really just a way to avoid discussing the reality of the situation (they are going to die) or do they really walk away with the thought of survival in their minds? The mind when confronted with the inevitability of the end, has a way of putting a spin on the way we think and rather than accept the inevitable it rallies up the courage and strength to put a positive attitude on and refuses to give in to the oncoming consequence. And who can blame them for not doing so? A defeatist attitude in this circumstance means in essence -------giving up. And that is something that the human condition (when faced with death) does not tend to do unless giving up has already been a large component of their lives. A similar human condition can take place in the investment world. We can have all of our theories about price and which way it should go. One of the most intriguing waves in Elliot is the "b" wave. I have yet to find an elliotician who can answer me this.............."WHEN IS A B WAVE NOT A B WAVE anymore."? In a joking manner......sometimes I want to say the answer is..........WHEN ITS TOO LATE !!!! LOL Now this is not to bash this mode or any other mode or method for trading the market. But may I tell you something? The more INFO that is thrown at me the more I find confusion develops. What I mean is this. SHOW a 7 year old a chart of gold and ask them if it's going UP, DOWN, OR SIDEWAYS. How much information does one really need except the above? The mind is intrigued with the complex and discards the simple. But there are times when LESS is MORE. Is this one of those times? We are always searching and trying to fill ourselves up with technical information that will give us an edge. But too much technical information always has us looking for a top or bottom. Think of the function of a technical indicator............what is it? TO CALL A TOP OR BOTTOM. As you've seen on our reports, some of these indicators have been in OVERSOLD mode for over a month now. But the 7 year old in me keeps saying................its going up isn't it? That is one of the reasons we are inclined to be careful flipping our TRENDS to bearish. Since the September rally began, we have yet to flip the short term gold indicator to BEARISH. Not once. And that has allowed us to REMAIN with the trend. We've come close, especially last week. We were tempted especially when we were shown the evidence of the DOLLARS turn and the COT evidence. We've even resisted our SEASONAL chart, where it suggests gold should be correcting. Yes, we've brought it up over and over, but just keeping an eye on it. But rather than anticipate its beginning, we have been patiently giving gold enough ROOM to pullback. In fact, we have speculated that the 4 week pullback in silver from 18.30 to 16.15 and gold's pullback from mid month might have been "the" correction. But we are weary of saying it is until we see more price action. There are times when I pay attention to Elliot Wave analysis. As you know, I seldom quote it. Once this month we quoted it in regards to the US Dollar. A key medium/long term retracement of the entire rally of the 2008 meltdown has occurred recently when the dollar penetrated the 75 area. A 78% retracement in Elloitology. We suggested that this was "one" signal we do want to watch because of the longer term look of the chart pattern. At that time, (with a trend line chart) we speculated that if we broke the 74.25 area, Goldtrends would be looking for new lows. Based on the Elloit call for a bottom, and on seasonal patterns, we looked for some type of dollar bounce. Unlike some, we did not say to exit gold, but admittedly, came close on a short term basis. It was gratifying the other day when we saw gold rally along with the dollar. Elliot wavers are calling for a major dollar rally...............and some calling it a gold top. Since this is coming at a time when we are hitting the upper aqua channel line, we will certainly keep an eye on it and report on our weekly or daily if we start seeing a breakdown as we AGREE with their analysis that this is a KEY AREA. However, we will let them call the top, and only react if they are correct and gold starts to go that way. As we can see by the chart below, the US Dollar has indeed reacted to the seasonal tendency of November as it is trying to bounce. The BLACK line overlaid on the price bars indicate there was a lot of BUYING that took place when the dollar bottomed. And in typical technical fashion we reached the 50 day moving average. As sometimes occurs, the US Dollar backed off of that area and pulled back. Although VOLUME is not shown..................there was a HUGE VOLUME DAY on this pullback, and the black line overlay shows that some gave up real fast on this rally. November is the month where the dollar usually gives its best performance on a seasonal average. The key now is if it can get above the 50 day average. There is nothing I see on the charts that's this oversold. Look at the Williams %R on the top of the chart. NOT ONCE HAS IT COME OUT OF OVER SOLD MODE SINCE AUGUST UNTIL THIS PAST WEEK. Even then, you can see that its struggling to just get ABOVE -80. Incredible weakness. Now if markets only went one way.................and yes, the US DOLLAR is certainly a candidate for that nomination, then it would be easy to make money ALL the time. The risk of a rally here is its greatest in a year and we need to keep that in mind. Therefore, November is "watch the Sawbuck" month. We want to keep our eyes on it. Any move above the 50 day moving average might begin to affect some commodities. Read that last sentence again. Notice we did not say WILL affect ALL commodities. The reason for that is GOLD actually rallied at the same time as the US DOLLAR. They actually held hands for a few days. And that's the first time in a long while that gold and the Sawbuck have done so. Have they kissed and made up and going to BOTH rally? Or is gold really just a bit behind and is ready for a MAJOR PEAK? The currencies is one of the favorite of traders and trend followers for one reason. IT IS THE COMMODITY THAT TRENDS THE LONGEST. In other words, currency trends, when reversed, tend to last a lot longer on average than other commodities.
It takes a lot to turn a real trend around. The forces behind are well entrenched. However, there comes a time when we would expect a dollar rally or bounce of some sort, right? Certainly the odds favor it. Especially when November is usually a strong period. But it is not a guaranteed thing either. There are times when great weakness can produce just a bump. And the dollar has taken many bumps lately...............but no rallies. Do you know why they call it a "carry trade"? Because it ends up "carrying the global finance and leverage" required to maintain this Keynesian model of debt and monetary debasement which is now on a global level. At least that's my take on it. The Japanese Yen has had the honors for quite a while, but now the US Dollar has been relegated to the new "whipping" currency. Let's think about this for a moment. The US needs trillions of dollars to finance the deficit. The world needs "FREE" money to borrow at a ridiculous low rate so it can buy higher yielding currencies in nations which in turn (Australia) for example, pays 3%. Other avenues of investment as well and this wash of US money allows other nations to buy up natural resources and form strategic alliances with energy producers and just go on an all out shopping spree. Incredibly, this seems to provide the world with the "fodder" it needs to invest.........er, I mean speculate with, and at the same time, provides the United States the ability to finance some of its debt. As a consequence the USA sinks lower and lower on the economic scale. Little by little the USA produces less and less, gets more and more energy dependant, and the financial markets will end up giving way as real economic growth comes down to government stimulus via the printing press. We already know the results of the Japan markets during the last 20 years. Incredibly their stock market is still off some 70% percent or so. The USA faces many of their problems they had and have yet to come to grips with credit contraction and its implications. With contraction.............can come deflating prices. For the USA, its a race to see if we can print MONEY faster than we can deflate. Looks like we're winning that one so far. But the Real Estate market has yet to complete its descent and the financial houses remain on the edge of bankruptcy. Just this week CIT filed. Something like 70 billion dollars. The one thing about a "carry" trade that one must worry about is if the "carry" currency begins to rise faster than the other currencies that speculators have invested in. This can cause a mass exodus as "carry" quickly becomes "cover" as everyone wants out at the same time. Now if your borrowing at .25% and getting 3% from another currency, that is a 12 fold return. But when dealing with 3% returns..................it doesn't take much of a dollar rally to worry the participants as profits can erode fast when currency trends reverse. In the mean time, confidence in the entire system is reduced and over the past decade, gold has returned to the front as the safe haven from currency debasement and runaway national bankruptcy. Now the general public, and even the investment public, will tolerate the printing of money when it is done in a controlled fashion. But when the tilting point arrives every so often, the return to hard assets returns. During the time that the dollar has been tanking recently, gold has been moving up a full 17% in a short order of time. As you can see by the chart below, last week has provided multiple LONG RANGE DAYS and a quick 70 dollar rally. Here we see the Williams %R pegged on he upper end, exactly the opposite of the dollar.
On a short term basis chart above, gold is at its upper end of the channel line. We've drawn a dotted channel line where the next resistance area is should gold break above its red summer channel. There are two scenario's that the analyst can make of the current gold action. The first is that we are at a pretty important top and what we just saw was a culminating momentum pattern. Indeed, with the dollar having just bottomed, has gold just finished it's run and a November correction is about to take hold? That is a very distinct possibility, but is it likely right here? Well, we can say it is certainly possible near this price area and timeframe. But this bout of strength came with the dollar rallying, and a stock market that has been weak. Is that how a market acts when its completing a trend or in the process of accelerating higher? Lets look at another chart perspective. The weekly chart below gives us our medium term perspective. From this view it is hard to argue that there is anything else but a major bull market breakout going on. The red arrows on the chart show the correlation in time when we measure it to it's last bull market.
As long as we remain above all of these trend lines and the 1000-1020 area the medium term is intact. As long as the indicators continue in the same mode as 2007, the rally is intact. As long as we keep putting in long range weeks like we just did at such important levels, the rally is intact. If we start to see weakness....we will address. Seasonal cycles are here and are peaking. Can a pent up market ignore cycles? Yes. The underlying problem that gold is signaling is that the Federal Reserve and the United States Government are out of bullets so to speak. Making the US Dollar the "carry" trade is the last hope that vast quantities of paper can be printed and lent out for next to nothing. And what productivity is it for the US? None. It may be good for economies that borrow the money and produce goods....they may benefit. But for the USA, it is just putting off the inevitable. Interest rates can't be lowered, they are already near zero, nor can they be raised as the remainder of the real estate market will collapse.
Gold is doing what it does best...............increases in times of uncertainty and loss of confidence. We've just had a 400 dollar rally in the last 12 months at a time where inflation has been non existent. Imagine when it does kick in? ========================================================= Monthly Edition October (October 3 2009)
Gold Monthly Update October 2009 by Bill Downey October 3, 2009 There was financial life before the 2008 meltdown……….and there is going to be life after the 2008 meltdown. It is the most significant event in modern day financial history as far as the total effect and financial drawdown that it has unleashed. It’s a shock wave and repercussion that stems from the August 1971 removal of the United States Dollar from the gold standard by Richard M Nixon. If you have time I urge you to watch the broadcast from that evening. You can Google it. It’s worth the listen, especially listening to Nixon telling the American people that this is being done for their sake and their well being. Telling us that it’s to make the nation competitive again (sic). To teach the dollar speculators a lesson proclaimed Nixon. Watching it now, I couldn’t help but ponder how naïve we must all have been to swallow that dialogue. But then I realized that it was no different than us doing nothing about the fact that our government is now 11 trillion dollars in debt and at this pace, will be printing about a trillion dollars every quarter just to stay afloat. When one is in the middle of a financial hurricane it’s very easy to stand like a deer in front of a set of headlights coming at us. There are many things that could be listed as the most important events of the 20th century, but I would think that the cancelling of real money and the issuance of paper instead should have been right up there. What is really interesting is that the abandonment of the gold standard is not on any of these lists I’ve seen. Yet that one fell swoop has allowed the confiscation of the wealth of the populous. There is a level of stress in any mechanism that when exceeded, a breakdown is unavoidable. The United States is approaching that level. In fact, because of its size, the breaking point is much like that of the Titanic. It’s already happened, but only the crew is aware of the problem. The passengers are still busy drinking, dancing and eating. They might have noticed the tilt but it won’t be until they see the water at their feet that they understand the depth of the trouble that is about to take hold. And like the Titanic, there are very few emergency life rafts on the deck. Most are going down with the ship. Except the crew, they will be the first on the life rafts. Going down with the ship is only in the movies. In real life, they are the first off the boat. The question that some are pondering is whether this will spawn another gold bull market leg or is the worse over and gold is about to roll over? Over the last 19 months gold bulls haven’t had a lot to cheer about as the market has been trapped in a large sideways price pattern. Although it came and went without a lot of media fanfare, gold achieved its highest quarter, monthly and weekly closes during the month of September. It was the first quarterly and monthly close above the triple digit 1000 dollar area. To gold bugs, the 1000 dollar zone is equal to Hank Aaron tying the immortal Babe Ruth’s record of 714 home runs (729 with World Series stats). I say tying and not breaking for just one reason. The highest print price of gold was the 1033 area in 2008. But price was reversed quickly upon that foray and gold did not achieve the monthly, quarterly, weekly and even daily closes we have seen during the month of September. Once gold catapults above the 1033 area and above 1050-1070 in breakout fashion, then we can say that the record is broken and new heights will be seen in the price of gold. It will be like Aaron’s 715th home run. There will be no denying the achievement at that point. Speaking of closes, within three months, we are going to have a yearly and a DECADE closing price. Like a stealth bull market, gold has been rallying over 8 years, and has gone from 250 to 1000. The public has not even arrived yet. But now that we are at 1000, the news is going to start to spread and little by little people are going to become aware if we remain above 1000 and we continue rallying. While there are many who will argue that 1000 is but a number and has no significant value I beg to differ. From a pure mathematical and statistical perspective they are right. 1000 is just a number. But markets are the reflection of the psychology of the masses that participate in them. And 1000 gold is just as important as Dow 1000 and Dow 10000 and Babe Ruth’s 714 home runs. When you see the price charts in this article, I think most will agree. As we approach the final quarter of this decade it is clear to anyone who has kept up with their monthly/quarterly financial statements that we live in a world that is very uncertain, very volatile place that is very difficult to make sense of anything anymore. There was a time when gold was considered one of the most volatile and speculative arenas one could put his hard earned cash in. But those times have changed. Lately, gold has been the least volatile of most financial instruments. Take a look at the stock market or crude oil or the American dollar. (Never mind Soybeans, and Sugar !!!) The price swings in those markets are more dramatic, more volatile, and less trending than the gold market. Let’s take a look at the last three years courtesy of www.stockcharts.com
The gold chart above shows that over the last three years, gold is in a major uptrend and is only $150 dollars shy of a double in 36 months. We can see that the short, medium and long moving averages are all trending up and that the short term (blue) moving average is above the medium term (red) and the medium term (red) is above the long term (green) moving average. We can see that for the past three years, the long term moving average (green) has only been touched once (at the bottom 3 weeks of the financial meltdown of 2008.) We can see that price right now is above all three averages, and is within a day’s trading of an all time price high in gold. Price looks to be on the verge of a breakout and we have just made a 20 month high as well as being less that 4% away from the all time high. People talk of the tremendous recovery in the stock market as it has retraced 50% of losses. Look at gold. It has retraced 100%. Since the meltdown bottom, gold has regained everything it lost. There is only one more thing gold needs to do at this point in time to become FRONT and center in the investment world. AND THAT IS TO MAKE A BREAKOUT ABOVE THE 1050-1075 area. By going to a price where it has never gone before, gold would be giving the strongest buy signal one can expect. How about all the other popular financial instruments? Let’s have a look.
First up is West Texas Intermediate Crude Oil. We can see over the last three years that price is ………………UNCHANGED. We are at the same price as we were in October 2007. We can see only the short moving average is trending up (blue) and that the medium and long averages are ABOVE price and above the short term average. In fact, we can see that PRICE IS RIGHT at the medium and short averages as the price battle that has been going on there for the last 10 weeks is for control of the medium term trend. Most importantly, since the financial meltdown of 2008, crude oil is down a bit over 50% (from 147 to 70). Contrast that with gold which is off 3% from its peak. Finally, there can be no doubt that crude is more volatile than gold in these past three years. Next up is the US Dollar. We can see that over the last three years the dollar is nearly 10% lower. We can see that the short term moving average is below the medium and long term moving averages (bearish). The long term moving average is below the medium term, and PRICE is below all three averages. The US Dollar was the only commodity that rallied during the meltdown, but the net gain from Oct 08 to now is virtually zero. Contrast that with gold which is up 30% since the meltdown low. How about the stock market? We can see over the last three years that the stock market is much lower than what it was in October of 2007. We can see that the short term is just now reaching the medium term moving average, and that the long term average is above both short and medium term moving average as well as above the current price. Since the financial meltdown of 2008 the dow is still almost 4000 points below the 07 July highs. Gold on the other hand is slightly above the highs of July 2007. How about the bond market? Over the past 3 years, the $TNX 10 year treasury note index has gone from 50 to 30. Here too the long term moving average is above the other two moving averages and price. When one looks at the raw data, gold is not only the best performing mainstream asset class for the past 3 years, it is the best performing asset class of the decade, and is leading the pack so far for the 21st Century. GOLD IS UP four fold this decade from 250 to 1000. Yet, you hardly hear about it in mainstream media, though that is discussion for a future article. The bottom line to all of this is that GOLD has been and should it break out here will continue to lead the way in terms of capital appreciation. For while gold on a daily basis did breakout to new high ground, it has not yet done so on a weekly basis. Let’s take a look at the weekly chart so you can see what I’m talking about. The chart below is a weekly chart of gold for the past three years. As you can see by the dotted sideways black channel lines on this chart, gold has not broken above the top dotted black channel line at the 1000 dollar area yet as it did in September of 2007 when price exploded through the black dotted bottom channel line at the 700 area. So what do we look for to confirm that gold has a breakout?
First off let’s look at the 2007 action just before and after the major breakout to see what is similar. Then and Now THEN: In 2007, gold consolidated just under the bottom black dotted channel line for about 6 weeks before making its breakout move up. (See fat red circled price of 2007) NOW: In 2009, gold is consolidating just under the UPPER black dotted channel line and is in it’s fifth week of doing so. (See fat red circled price of 2009.) THEN: In 2007, the RSI indicator (at the top of the chart) never once fell below the 50 area on the weekly chart. NOW: In 2009, the RSI indicator (at the top of the chart) never once (so far) has price fallen below the 50 area on the weekly chart. THEN: MACD HISTOGRAM (at the very bottom of the chart) came out of the below zero reading and started putting in positive bars. (see red circled area) NOW: MACD HISTOGRAM (at the very bottom of the chart) has come out of the below zero reading and is putting in positive bars. (see red circled area) THEN: The initial 6 week consolidation we spoke about earlier occurred in the August/September timeframe. NOW: The initial 5 week consolidation we are going through now is occurring during the same seasonal timeframe. Conclusion: GOLD IS AT THE APEX OF A MAJOR BREAKOUT AGAIN. What Next? In this section, lets us now take a look at what WE NEED TO SEE if this is a genuine breakout. 1) We need to see price move above the upper black dotted channel line and we need to begin to see higher lows on a weekly basis and we need to move above the 1040-1075 area to confirm the breakout price. 2) We need to see the MACD HISTOGRAM indicator listed at the bottom of the chart to continue to PRODUCE higher bars during the initial phase of the breakout. (disturbing was last weeks bar that was lower than the previous weeks) A failure to produce higher bars while gold is rallying in breakout fashion will warn that the breakout might be limited in price appreciation. 3) We need to see the WILLIAMS %R indicator just under price remain above the 80 area. 4) We need to see the RSI indicator at the top of the chart continue higher and even enter the 70 overbought area once the breakout is under way. 5) Although covered a bit by the red circled area in 2007, price NEEDS to have a thrust above the upper channel line when it breaks out. A 50 or 75 weekly dollar rally should do it. 6) We need to see the GOLD STOCKS participate if this is a true breakout. 7) We need to see a PRICE PATTERN that is consistent with an impulsive move. Before the breakout in 2007 price was in a choppy and overlapping price pattern. ONCE the breakout occurred…………the price pattern became impulsive and price did not overlap. It just kept going higher from week to week. Today we’ve been through a massive choppy pattern over the past year. IT MUST end when we break above the top black dotted channel line. Choppy patterns are not typical of real strong breakouts. This current timeframe needs to exhibit the same characteristics. 8) We need to see price remain above the short term blue moving average on the chart. BOTTOM LINE: Going forward, it’s simple. We need to see gold break above the upper black dotted channel line, and once that occurs we need to see confirmation in price patterns, overbought indicators, and gold stock participation to some extent. We need to see LONGER weekly price ranges and they need to continue up in a steep methodical advance. In conclusion, gold bugs need to see a rally beyond the 1035-1070 area in gold and then we need to keep an eye out for the eight things I have listed above to ensure that the rally will have staying power. For our visitors from other websites. At Goldtrends, we follow all the timeframes of the gold market right down to the hourly trend. We are currently monitoring the potential for a weekly medium term breakout. Gold has established the PRICE points at which the "odds" will tilt to the upside or the downside. If you like to follow along with us as we watch PRICE confirm when the next major trend begins, then drop by the website (where registration is not required) and check out ALL of the gold and silver analysis provided there for your review. May you all prosper. (If your reading this from 321gold.com, please take time to view the remainder of our website by clicking the buttons on the left top of this webpage) May you all prosper in the coming month.............
Bill Downey ****
Bill Downey
is an independent investor/ trader involved with the study of the Gold
and Silver markets since the mid 1980’s. He writes articles for public
distribution for other newsletters and websites as well as his own site
at
http://www.goldtrends.net/ where
registration or an e-mail address is not required to view our data. The opinion expressed in this report is the conclusions of the author. The information provided was researched carefully, but we cannot guarantee its total accuracy. The report is published for general information and does not address or have purpose or regard to advise specific investments to anyone in the general public. Rather it provides an individual’s perspective of such markets. Its content does not recommend any specific investment advice to anyone nor should there be any inferred.
=======================================================
Gold - a technical macro & micro view Monthly Edition September (August 28 2009) The seasonal factor for the gold market is due to turn up in the month of September. But we want to ask ourselves, WHAT needs to happen for it to kick in? Well, certainly the psychology has to be there. More importantly however, THE DEMAND must be there. And what is the most likely demand factor this time of year? Christmas and India's wedding season. The gearing up for Christmas (depending on product lead times) usually starts kicking in right after Labor Day. The initial orders for raw material used to ramp up the manufacture of products for the holidays is usually where it all starts. The 64K dollar question this year is "how brisk will the shopping season be?" and with gold at record prices, how much expenditure will there be in that avenue? And then there's India. This excerpt taken from JULIAN PHILLIPS – at GoldForecaster.com The heaviest influence
on this seasonal pattern of
Gold Prices has been jewelry demand from India, where as much as 850
tones of gold per annum was imported in previous years. This demand from
Indian jewelry buyers was, in turn, driven by the weather. So the Christmas buying (and it is all estimated) will be a factor. Will merchants keep the orders low expecting a Christmas bust ? Hard to say, but odds suggest it will be LOWER than in previous years. And India, one might be wise to keep tabs on the "crops" and how their yields and quantities play out. The current threat is the rainfall situation there. Taken from http://www.agrometeorology.org/files-folder/repository/indian_crop_report_27Aug2009.pdf (there's a 29 page report - very detailed) The subdivisions like Haryana, Chandigarh & Delhi, Himachal Pradesh, East Madhya Pradesh received scanty /deficient rain in all the 5 weeks; Orissa, West Uttar Pradesh, Jammu & Kashmir, West Rajasthan, East Rajasthan,West Madhya Pradesh, Gujarat region, Saurashtra & Kutch, Konkan and Goa, Marathwada, Vidarbha,Chhattisgarh, Telangana, Coastal Karnataka, Kerala received scanty / deficient rain in 4 out of last 5 weeks;Jharkhand, East Uttar Pradesh, Uttarakhand, Punjab, Madhya Maharashtra, Coastal Andhra Pradesh, Rayalseema,TamilNadu & Pondicherry, North Interior Karnataka, Lakshadweep received scanty / deficient rain in 3 out oflast 5 weeks. Remaining States received normal / excess rain in 2 or more weeks during last 5 weeks. And from Reuters http://in.reuters.com/article/domesticNews/idINDEL49552020090721
------------------------------------------------------------- Bottom line: I am no expert in India's agriculture. However, rain will probably be the key factor to look for. The "GOVT" report I read said the crop is in satisfactory to good condition. Counter that with an article I read a few weeks back that suggested a 35% potential drop due to drought !~!!! Such is the information age. What does one believe? Finally, there's one more factor................. THE "INDIVIDUAL" investor. The wild card of the bunch. All of the reports circulating the web suggest that demand is heavy and running at or near record levels. What makes it a wild card is how small the universe of gold is compared to the "paper" markets of the world. It would take a very small portion of total paper asset value to completely upset the supply demand factors associated with gold. The Gov't is well aware that AN OUTRIGHT PANIC could have substantial consequences when it comes to the price of gold. But in desperate times people do desperate things. It has been reported that the central banks are now NET buyers of Gold. Do you think they know something the public doesn't and is it bullish ? In other words, are they the smart money, or the DUMB money. Ah, perspective is everything. Central banks turn net buyers of gold in second quarter of 2009: WGC Reality vs. Reality TV And then there are the scary stories as I like to call them. Some call them the gloom and doom, or the conspiracy stories. The stories are rampant on the net. Examples are: There's no gold in fort Knox, there is a banking holiday coming, there is hardly any gold left to buy, the COMEX is about to shut-down........ there is another meltdown coming, no one but the Fed is really buying any of our bonds, the unemployment rate is really 16%, the US dollar is about to collapse, the real estate market drop is only half over, the social security fund is empty, California is selling Arnold autographs on E-BAY to make payroll, the national guard has interim camps built and they are hiring "Internment Specialists" for when civil unrest breaks out, the precious metals markets and every other market is being totally manipulated...........911 was an inside job, we didn't really land on the moon and OSWALD DIDN'T KILL JKF !!!!!!! Sorry...................as you can see I got carried away on those last few. Right? See what I mean about scary though? Don't get me wrong either. I am not making light of ANY these stories. On the contrary, some of them are downright scary and some of these stories are coming from people with pretty credible names. Now, I will admit, a lot of these and other stories have surfaced, but none of them have come to fruition......YET. Let us not kid ourselves for one moment. The world as we know it came close to an end last year. Read that again. Yea. It was that big. Whether it was by hook or by crook is a story for another day. The point I want to make is eventually.....and maybe sooner than later, either a complete hyper inflationary scenario or a massive credit contracting deflationary event is going to take place. And how you position yourself is going to determine how much of your purchasing power your going to retain. Odds suggest that time is fast approaching. That's the bottom line folks. And that's where gold enters the picture. Not only is the world in a deep set of weeds, the demand/supply factor for gold looks very bullish as well. So how do we know then if all of these factors are coming into play or will come into play ? PRICE. Wells Wilder and Jim Sloman summed it up well. (from the book, "What matters is profits") Price is all that matters in the end. Everything known about the market is reflected by price. All fundamentals are contained in it. Price is the effect of volume, open interest, and the psychology of the market. Supply and demand is contained in price. When everything is reflected, summed up and discounted about a market.............you arrive at price. Price is reality. So lets look at price and see what it has to say about itself at this now moment in time. The chart you see below is the entire 21st CENTURY LONG TERM BULL MARKET since it began. It is characterized by a MAIN BLACK CHANNEL that shows gold's price support around $750 and price resistance around $1100. But if you look closer you can see some smaller channel lines that exist within the big black channel. In fact, there are three, the 1999 orange channel, the 2005 green channel and the 2007 purple trend line. Notice how price is just supporting at the green trend line and how the orange and purple lines cross together in a price area of 850 to 925. This is a very important medium term price support area for gold. A breach of the 830 area would suggest that gold's price would return to test the bottom black uptrend channel line at around 750. Gold has been trading within the green channel parameter lines since 2006, and as long as gold remains above the 925 area, this channel will be intact and prices will be poised to MOVE HIGHER into a MAJOR BREAKOUT above the top black channel line and the major bull market uptrend will resume this fall.
However, should price break below the green line channel, and begin to support within the orange and purple trend lines, it will be suggestive that gold's consolidation is not yet complete and we will remain trading range bound between 1000 and 880 for a little while longer, perhaps into the October or November time frame. For while the seasonal uptrend in gold usually begins now, it can extend in some years into late fall. The final scenario discussed earlier in this chart is if gold breaks below all the dotted lines and below 830 in price. Then the "odds" would favor a test of the lower black line at 750. All it would take is another contraction like we had last fall.........err......I mean, last Autumn. So the long term price support for gold is 925, 900, 865-880, and 750. Lets now ZOOM in closer and see what price is showing right now to see what we can discern as to its current directional outcome.
If I can direct your attention to the MIDDLE black channel line. Notice it is connected to the price tops of the 2006-2007 winter rally and if you follow it all the way to today, you can see how price has been hanging on and supporting right on that 3 year trend line since June. The 50 day moving average is right there as well and the 200 day moving average is at the 900 area. (As of Friday Aug 28th). On a shorter term basis then should gold drop below the 923-930 area, it would suggest a test of the 850 to 900 area in the coming month. On the UPSIDE, any move above the down trending red line above 975 would open the door for a test of the 1025 area. Any move above 1075-1100 would be considered A MAJOR BREAKOUT IN PRICE. The parameters for September suggest that moves above 975 would tilt the ODDS in favor of a rally in the triple digits. The inverse would be a close below 925 would tilt the ODDS in favor of a drop into the 850 to 900 area. Finally, let's ZOOM in and see what the trend looks like underneath the daily price bars on the charts. Below is an hourly chart of December gold. The small red arrow at the bottom is pointing to an aqua colored trend channel line. This channel line is the 2009 trend line. Look at how the gold price has been bouncing off of this line time after time since August 7th. In an amazing DISPLAY gold has fought off each and every bear attempt to push it thru and break down in price. But gold has withstood 10 tests and probes and each and every time has bounced right back above that line. Finally last Friday, gold rallied from the 949 area to 965 before pulling back to close the week out at 955. Now gold is poised to challenge the last two interim highs at 960 and if gold can climb above the 978 area where the long red arrow is pointing, then gold has the potential to launch into a fall rally and reenter the triple digit price area. On the inverse, should gold fall below the aqua channel line, and close below 925, then we would expect gold to correct towards the 900 area or lower and potentially postpone the fall rally.
BOTTOM LINE: The bottom line is one way or another, the odds greatly suggest that a big move is about to develop in the gold market and the direction is about to be established. My market strategy is not to try and guess where the market is going. There are plenty of applicants for that function already in market land. You probably know many already. I find that it is a lot easier to let gold itself lead the way. And when gold supports and then establishes a trend and begins to move, I FOLLOW IT. As you can see by the charts, the next trend is about to begin. In six of the last 8 years, gold has launched a 4th quarter rally. This report has shown the technical price areas gold needs to hold in order to fulfill its rally potential. At Goldtrends, we follow all the timeframes of the gold market right down to the hourly trend. We are currently awaiting the arrival of the fall rally. Gold has established the PRICE points at which the "odds" will tilt to the upside or the downside. Now it's up to Gold. May you prosper in the coming month......... William One thing is for certain. A MAJOR MOVE in gold is about to develop. Gold has stayed coiled in a very tight range for most of 2009 and has not made a new major high in 19 months. Most of you reading this the outlook for the future is not rosy. Yet herein lies the opportunity for the few who know that their purchasing power is UP FOR GRABS. =========================================================
Gold - Is the 17 month consolidation complete? Monthly Seasonal Gold Update By Bill Downey July 31, 2009
Another month has come to an end in the gold market and it is always good to review where we’ve been and where we might be going. For those of us who follow the market closely, you know how important it is to constantly review the important aspects of the market and to keep those aspects in the forefront. Even if you view from a distance, a good monthly review is essential to keep up with the price trends of the gold market. The past 17 months sideways consolidation to a certain degree can sometimes put us in a frame of mind in gold that we get so used to the sideways trend that we might sometimes miss what is brewing underneath the market. In this monthly update below you will read what I think is good evidence that this market is preparing for its next LEG of price movement. Here’s the evidence I’ve gathered. With all the information available these days it becomes very easy to forget about certain types of information one reads that is important. We end up getting caught up in the markets and with all the data we look at, it is very easy to forget about the important things we’ve read or should be following. A lot of times, we remember them after the fact when a good sized move jolt’s our memory. This is why it’s good to review some important indicators on a month to month basis so as to stay in tune with the markets as much as possible. In early July I wrote a mid year gold seasonal review and outlook for the 2nd half of the year. If you would like to review it its under the long term button or here: http://www.goldtrends.net/Long%20Term.htm This is a follow up to that update. The chart below is a 29 (blue line) and 15 year (red line) seasonal average for the price of gold. You can see for the most part that the 15 year average continues to follow the same trends that were established 30 years ago when gold became “free” to trade on the open markets. One exception is over the past 15 years, gold on average makes a lower low in August than the July lows. But not always as you’ll see. The important thing for us to walk away with is not which will be the lower low, but the fact that the lows for gold on average (6 of last 8 years) occur sometime between the end of July and August. The good news is since the BULL MARKET began (over the last 8 years) the gold price has only twice dropped below July’s lows. The 15 year average (red line) shows that it is about equal with July in downside. The chart further down this report will give you a good idea of July and August action. On average, we have arrived at the optimum time this year where gold usually makes its lows on average. The key word here is on average. For on a year to year basis, gold’s peaks and valley’s will remain in the same time frame but there are exceptions. Price range will vary depending on whether gold is strong, weak, or Normal. But every now and then, an “out of the box” event will occur such as we saw in 2008. The September period as you can see is usually the strongest momentum of the year. Last year however, gold got caught in the global liquidation of assets and price retreated 30%. So while the ODDS are going to favor a rally hear (six of last eight years as you’ll see later), we have to remember that nothing is guaranteed.
In a normal year, (such as this year so far) gold has been following the seasonal script very closely and it usually makes a trend change up right around this time. As you can see by the seasonal chart, gold usually peaks in mid winter with the average time in the first two weeks of February. The 2009 peak price was on February 17th at the 1007 area (the high for the year). From there gold pulled back into the March timeframe coinciding with the seasonal chart as well. In fact, this year we even had a price rally into May and a price peak the first week of June. And it gets better. From a June 5th-6th price peak, gold sold off into the first week of July and then proceeded to rally up until the last week in July where price peaked at the 960 area. Now notice if you will that the seasonal price chart shows a fast drop into the end of July and a hard bounce up to the beginning of August. On Tuesday and Wednesday of July 28th and 29th this week, gold dropped hard and fast just like the seasonal chart depicts. To top it off gold reversed its downtrend on July 29th and by Friday’s close exploded right back up to the 960 area following average seasonal tendency on the charts back up into the beginning of August. Should gold continue to do what it does on average, the first two weeks of August seem to suggest there’s going to be a lot of choppy up and down action. I can’t help but suspect a couple of price fake outs on both the upside and the downside. I decided to take a look also at how the bull market has performed in the July/August time period since the bull began in 2001. The monthly gold chart below covers this current bull market in gold. The red arrows point to the month of August. We can see how optimum this time frame usually is for Gold to be purchased. On the chart there are two AUGUST sell-offs. There was one in 2006 and one in 2008. One was small one was deep. What’s it going to be this year? One thing that I noticed is that each correction (2006 and 2008) occurred during years where gold, on both occasions of the correction, had massive rallies leading into that time frame. In fact they were the two biggest moves of the bull market to date. In 2006 the low came in October. But the real disaster on this chart was the failure of last year right in the month of August. Although gold corrected with everything else, the true hidden strength of gold was demonstrated during that correction. Look at the price bars. You can see on the chart that the drop in August, September, and October months each had a HIGH of 900 on the monthly chart. Then November, December and January all closed on their monthly highs. So while the there was a drop of 30% from top to bottom, the price pattern seems to suggest that gold and was SO STRONG that although it was affected by the mass liquation/deflation, it’s price could not be contained lower and in fact a good look shows the drop was basically over in the first 90 days and gold then proceeded to march right back up to its highs! Compare that to other markets. NOTE: JULY BAR NOT SHOWN (July 958 high 903 low)
I’ve constructed a trend line off of the HIGHS of 2001 thru 2004 and the lows of 2006 and 2008. Then I inserted a parallel from the 2006 high thru the 2009 lows and constructed a channel. As it turns out it really helps clarify the price action we’ve had during 2009. From this technical perspective we see that gold has broken out above the channel and all year price has been supporting on the top of this channel. Now we can see how important the 880 to 900 level is on this chart. For good measure and to allow for channel penetration, we could infer that MAJOR support is the 850-865 level for gold. This would make room for this years low at the 865ish area and allow for a 15 dollar penetration of that low. Based on the monthly charts, if these areas fail to hold price, then the odds will quickly shift to a potential drop into October period. I could not help notice what seems to be lack of support on the monthly chart below that 850 area and that channel line linking the lows of 2006-2008. Is there any event that could spark a sell-off in gold? I think the only thing that gold bugs need to be on watch for is another event like last fall that would trigger liquidation in most markets again. CLOSES BELOW 880 should be viewed with extreme caution for the bulls………especially if everything else is selling off at the same time. The table below summarizes my summation of the monthly spot gold chart
Now that we have looked at the data, what can we glean out of it for our potential benefit? Here’s what the data suggests to me. 1) There is usually a mid to late winter peak. 2) There is usually a correction in the spring. 3) There is usually a bounce from the spring correction into the early summer. 4) Once the bounce into summer is complete, there is usually a pullback or correction into the late July/August time period. 5) A RALLY USUALLY BEGINS then, but sometimes is as late as Oct/Nov. 6) Only two of the last 8 years has gold dipped below July/August during the year. (2006 and 2008) 7) In six of the last eight years, a rally has begun in the August/September time period. 8) In two of the last eight years, a correction began in July/August that lasted until October/November.
Observations:
1) From Jan 2004 to August 2005 (18 months) the price of gold was virtually unchanged. Then PRICE EXPLODED UP. 2) From May 2005 to August 2006 (16 months) the price of gold was virtually unchanged. (Then PRICE EXPLODED UP.) 3) From March 2008 to August 2009 (17 months) the price of gold is virtually unchanged. It is now August and it has been 17 months ---------WHAT USUALLY HAPPENS DURING THIS BULL MARKET AT THIS POINT?? That’s right. A significant rally. 4) The two times that prices corrected into October/November were in 2006 and 2008. The year before the 2006 correction, prices rose from 425 to 725. The year before the 2008 correction prices went from 650 to 1000. Both corrections came after a major rally. That is not the case this year. 5) The entire bull market RALLY from 400 to 725 took place from September 2005 to May 2006 (10 months) and from September 2007 to March 2008 (7 months). Thus the entire run from $425 gold to today is about 46 months. 6) In those 46 months, all the gains came in 17 of those months. The rest of the time (29 months) were spent in a choppy sideways to lower price action. (Now you know why some of you have had difficulty making a good buck. If we think about it, the most important thing we need to know to be successful is when the TREND has reverted back up for the next leg of price acceleration for gold) 7) The best time to buy gold is the August/September time period. This is when the majority of rallies start. They aren’t necessarily from the lowest point, but they are of longest duration and strongest of rallies. I’ve heard this is when the Jewelry market probably begins its ramp up for Christmas, and when India starts buying gold for the upcoming wedding season. Major rallies develop when the investment public joins in at the same time.
Closing thoughts: As long as we are above the June lows (920) and the JULY LOWS (903) and in conjunction with the upper channel line on the chart, the ODDS greatly favor a fall rally. Should August fall below the JULY LOWS, and the channel line, it would raise a danger flag and would suggest caution and the potential for the current consolidation/correction to extend later into the fall. Should all markets be in freefall and gold as well, odds suggest a test of the lower trend line. Should August CLOSE the month on the highs, it would suggest the rally is probably under way. What would confirm the rally? Well, moves above last months 960 would certainly start things off. But we must hurdle the winter and spring highs at the 990 – 1007 area, followed by the all time high at 1033. But we need to exceed this area with conviction. What I mean is that we need to see a few things during the rally. We need to see gaps in price, long range days like last Friday and very high volume. We need to see the mining stocks move above their RESISTANCE AREAS and ignite a rally that takes the lead in the stock market. We need to see price close above the 1075-1100 area. May you prosper William The opinion expressed in this report is the opinion of the author. The information provided was researched carefully, but we cannot guarantee its total accuracy. The report is published for general information and does not address or have purpose or regard to advise specific investments to anyone in the general public. It does not recommend any specific investment advice to anyone.
|
