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Gold Technical Analysis and Weekly Update For investorsThe 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. Bill Downey GOLD - The 21st Century Bull Market Weekly Gold March 8 2010 - Still here at 1130 In the last weekly gold report we moved to a neutral stance at the 1130 area. In some ways, I'm pleased to report that the stance was correct so far. But neutral has to be viewed in context of the short, medium and long term. While I'm still confident that the long term trend is up, I have a tendency to be very careful during the February/March timeframe and still have old wounds from past years where I would hold and have the attitude of Damn the torpedo's. Here's a reprint of what we wrote in our bottom line some 17 days ago. BOTTOM LINE: Odds favor a range bound week in gold 1085-1136. Resistance is 1130-1136 or 1163-1183. Should gold exceed 1136, we would look for the 1163 area as test. Since that update, the low in gold was 1188, just 3 dollars off the stated range, and the 1136 area was updated in our daily report of last week to 1136-1147. The high thus far has been 1146. As I begin this report tonight gold was trading at 1135. We also stated that should gold exceeded 1136, we would look for a test of 1163. While we are using the 1147 number now as our key point, the challenge this week is to now address whether the gold market March bounce from 1088 is complete or whether we are indeed poised to move to the 1163 area. Let's take a look at the chart from a longer term view. The weekly chart below from www.BestFreeCharts.com (great site) takes us all the way back to just about 9.11.01 when gold was trading at the 250 dollar area and the US Dollar was less than 3-6 months from making its high at the 122 area. In this chart we can see the major move that gold has accomplished during this 21st century bull market. Most important is the upper convergence of ALL MAJOR TREND CHANNEL LINES. The upper channel line originates from the 1993 final high at around 375-390 per ounce and was the final high before the final leg down to 250. The lower channel line stems from the bear market bottom at 250 right around the 911 incident at the world trade center in New York. At the risk of sounding conspiratorial and with the hindsight of seeing just how rigged the world financial system is for those of you who are of the inquiring minds there is a LOT to be considered on how much GOLD WAS MISSING from the WTC. Here is the link that will get you started if you wish to follow up on the potential that a massive hoard of world gold went missing. http://911review.com/motive/gold.html
What does the chart reveal to us ? Once again, the convergence of the 1993 and 2002 upper channel lines at the exact time gold's price reached that exact projection suggests to me that this is area where gold either extends into a major break higher or a potential correction (which we have been in since December). If we look at the upper channel line from 2002 we can see 4 major peaks at, near or slightly above that line. All four peaks produced a test of the lower SUPPORTING trend line (the 2008 crash low actually penetrated the channel line). From that low a high sloping channel line was formed in 2008 that has held all the price pullbacks. NOTICE HOW THAT LINE IS NOW DIRECTLY attached to the 2002 trend line and how price is now arriving at the ZENITH of a MAJOR APEX in between both lines right at and around the 1993 upper channel lines. (Ok - the translation means this: IF THERE IS A BREAKOUT or BREAKDOWN IN GOLD it is most likely to happen at this point and price in time.) On the bullish side is the moving averages on this chart. Whenever the blue line is above the red line gold has done very well. ONLY THE CRASH of 2008 flipped the red line over the blue. Look at how the 1040 low penetrated the 2008 uptrend line and made an exact touch and support of the blue line. (NOTE: The red line is not a STANDARD 13 week moving average but my own personal spin on how I've customized it). AS LONG AS PRICE IS ABOVE the lows of FEBRUARY and the most recent the potential for a major breakout in gold exists for 2010. Scroll down and I'll show you the one concern that I am closely monitoring.
This Chart is from the December peak and is still posted on our daily button. The title of our daily update was entitled "At the Zenith" and proved to be the peak in gold. The breakdown from this pattern is what assisted goldtrends in surmising a top and a potential medium term correction. That correction bottomed (so far) in February and the bottom was at the spot where the THANKSGIVING Dubai Correction occurred -- circa $1140. LOOK LOW SIMILAR THE PATTERN on the weekly chart above is !!! This in itself does not mean that gold is about to crash. IT MEANS THAT WE NEED TO BE ON GUARD regardless of how bullish the outlook might be. A bullish outlook is one we should have for gold. But that does not negate a potential correction first. With that said, there is nothing that says gold cannot resolve to the upside. I am attempting to only show what we need to be on GUARD for as CONTINGENCY should gold not pan out to the upside right away. Coupled with the seasonal weakness that can be witnessed during March is what has me watching closely. The Apex extends into later this year so the potential for a 2010 pullback cannot be discounted and it could take until later in the year to develop. On the flip side, the bull market has more than proven itself capable of grinding higher time and time again and I am not advocating that this market be shorted. What I am advocating is this is a time where we need to be cautious until gold tips its hand. IT is a RARE TIME OR OCCASION THAT GOLD IS HIGHER PRICED IN JULY THAN IT IS IN EARLY MARCH. Not that it can't ---- but not the odds favored. Part of the problem is we are no longer functioning in a "NORMAL" realm and analysis becomes more and more difficult. What About the Dollar ?
On the exact day of the Dollar low November 30th, 2009 I believe it was, we published this chart of the US Dollar and did make a case for a dollar rally. While this call has panned out the dollar's gains are Euro based much more so than in gold. The Euro has collapsed from 151 to 136 in a few short months and the dollar index is 48% based on the Euro. Giving credibility to gold is the fact that while it has taken a break from making new highs in dollar terms, the chart against the Euro looks like what gold did to the US Dollar earlier this year. The chart below of the US Dollar shows that price is approaching the resistance area we pegged 3 weeks ago. The past few weeks of sideways action has dollar bears calling for a peak but each time they do the dollar reverses the next day or so and runs back above 80. The 50 day average is now on top, and the 200 day is getting closer to the 100 day. While MACD has turned down, notice how the Williams %R at the bottom of the chart stubbornly remains above the 20 area, suggesting that there is still momentum potential in the US Dollar. For how long remains the question. The dollar bears are worldwide and even the bulls are short term, realizing that the demise of the dollar is inevitable. I cannot argue or defend that view. However, it is always unsettling to me how one sided the view is. It is this point that leaves the potential that the dollar has further upside to go before it rolls over. With that said, the level of this CRISIS cannot be denied and considering a dollar rally in this backdrop is one that is very difficult. For now, the dollar chart remains in an uptrend that seems to suggest that the potential to move to the 82-83 area is not an impossible task. However, gold seems to be less and less affected by the dollar rally so not as much weight should be given to the US Dollar rally. Dollar followers can watch the 200 day and 100 day average to see if there is a cross of the two. On the shorter term, a pullback from this area certainly can develop and the 77-79 area should provide initial support. For now, the chart is still in a bullish posture overall. We will continue to monitor it but it is not as high on the gold watch as it was in December.
It would seem that a better way to look at gold and the dollar effect would be to measure the two together. When we do that the clarity of the dollar effect on gold is very telling as the chart below displays.
When we look at the dollar in this manner, we can see that the rally against gold is anemic.
Measured in this manner we can see that the dollar rally is barely holding the 50 day average and the 200 day is still above price. The 100 day and 50 day are converging at this price zone and should be an interesting watch. This chart is suggesting that the dollar is at best containing or contributing to gold's price for the moment. When the dollar does weaken, it is suggestive that gold will become very strong. Finally we come to this week. This is a zoom in of the current action --- one that I suspect is still within the confines of the triangle we've been monitoring. While many say we've already broken above the downtrend line, I'm not as convinced.....but I do remain totally flexible to the outcome. Resistance for the coming week is two fold. The 1144-1148 area and the 1163-1183 area. Last weeks high seems to have more of the make it or break it facto so anytime gold is above 1140, close attention should be given to this area.
One of the other areas we discussed was the seasonal factor for gold. There is a part of me that thinks we might remain within the confines of this triangle (orange) for this week.
Support lies at the 1128-1126 area initially, but the 1110-1112 area is a much stronger zone. Key weekly support is the 1080-1090 area in spot gold. Bottom line: Since we are neutral we are flexible as to price direction. Our thoughts is that we could see a trade range of the mentioned areas. When the market is no longer neutral we will be the first to embrace it. KEY NOW IS WHAT DOES GOLD DO THIS WEEK AT THE 1130-1147 area. I BELIEVE THE BULLS ARE STILL IN CHARGE and the odds still favor them. But until we move out of the 1135-1148 area or the triangle, we could see another choppy week. So keep your eye on the price supports and drop by the daily button during the week to see is support/resistance numbers have changed. Lets see what gold does at this price level this week. UNTIL WE MOVE OUT OF THE CHANNEL gold could remain choppy and within its boundary. Let's see what goes on. We will maintain a medium term stance again this week as to the medium term. In the last report below, we discussed the potential of the correction being complete and that the autumn and winter pullbacks already having transpired. The fact that gold has moved above the FEBRUARY HIGH starts giving the bulls a slight edge but also makes the 1130-1145 area the MUST DO for gold if the correction is over. Our other target of 1163 is the reaction January high from this correction. This too is an important area. For this week.........1130-1145 and the action around that price is the make or break factor. Keep a watch of this key area as to which way gold decides to go. As soon as gold starts trending again on the medium term we will become more conclusive. On the short term, we give the bulls the slight edge but still stress how important this area is short term. Weekly Gold February 19 2010 - In Middle of the Neutral When we put the week ending in context, gold and silver had a great week. Mind you it was choppy and up and down but the fact that gold survived all the raids, the discount rate hike, the IMF claim that they could find no buyers for the rest of their gold so they would put it on the open market and the myriad of "media stories" that gold is in a bubble. The only bubble left is the bond market and that is the next bubble to probably go. We do this so we can account for the seasonal tendencies of gold. And we are the wiser to do so because it is good to know the tendency of your favorite commodity. Then you know what to expect, what the odds are if you will. But when a commodity doesn't act like its suppose to it's also telling you something. That something usually means that the supply side and the demand side are imbalanced. Contra seasonal moves can be big because its not what the commercial and speculative markets are expecting. For the upcoming week the short and medium term trends have moved to neutral as gold is right in the middle of its 4 month range. Cycles favor lower prices to month end but a move above 1136 will suggest a test of 1160-1185 would be the next move. Otherwise ODDS FAVOR A RANGE BOUND WEEK between 1085-1136.
How about the US Dollar ? Goldtrends was early to spot the dollar rally and was well documented in old updates. By maintaining a non biased approach we've been bullish on the US dollar since late 2009. And.......we remain bullish on the US Dollar. The US Dollar remains in an uptrend and defined channel line with bullish looking characteristics. The trade that no one believes remains technically very strong in volume characteristics and in price patterns. It looks like it has further to run. Those calling for the top every month will eventually be correct. We'll remain bullish until the chart says not to. Does that mean I'm a dollar bull? NO. It means I'm interpreting what the chart currently reads. When it turns bearish in my view....I'll post it. Do I have faith in the currency ? No....but apparently the volume on the chart shows someone likes it at this moment in time. Besides, it seems like gold is not hurting that bad because of it so far. The Euro is 47% of the index and that tells the tale. While gold is taking a breather against the dollar it's making new highs against the EURO. So the other currencies are just playing catch up. Gold measured in terms of the US dollar is just waiting for the other troops (currencies) to catch up. So far gold is attempting to run up with the dollar from its February low. As long as the dollar is strong is will continue to at least hinder gold. So far it has not derailed it. But its worth keeping it on radar. Look at the volume and bidding of shares sold on the bid price. WHENEVER you see a chart with this type of volume it's worth keeping an eye on. Which leads to the next chart.
How about the Gold Stocks ? GDX also shows a HUGE VOLUME increase. The bottom day traded 100 million shares. I would think those stocks are now in strong hands, wouldn't you? That's what the odds would suggest. Again the concern or pause if you will is whether we've made THE LOW. The 45 area is where the downtrend is neutralized and begins to give opportunity for the price to break above and rally towards the all time highs. Key support is the 38-39 dollar area and one would probably have to risk 36 if he/she were longing it. A move above 48 will tilt the odds in favor of the upside. Additional support is the 30-33 dollar area. We can see where the bottom of the channel was tested and price successfully turned back up. The 100 million share day suggests it was a climax. Odds favor it. The bottom line for stocks is they have correlated to the S&P for the past few years and not as much to gold. Its been a bad place to be. Gold stocks are at their 200 day moving average. If your a long term investor this is usually the spot to watch an many advocate to take a position. If one were to position here it might be a small add to an existing position, or a small entry position. A 20% trailing stop would be safest but a break of the channel would also be a consideration of exit. It comes down to risk/reward. Still, when the mania hits they should follow gold. Although GDX has done nothing for the past 4 years (yes it was 46 in 2006) it should track if there's a gold bull market.
BOTTOM LINE: Odds favor a range bound week in gold 1085-1136. Resistance is 1130-1136 or 1163-1183. Should gold exceed 1136, we would look for the 1163 area as test.
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GOLD - The 21st Century Bull Market Weekly Gold February 16 2010 - We got the bounce........is there more? Let’s get right to the data this week and view the technical condition of the gold market. Let’s look at all three time frames, long, medium and short term. On the weekly chart below we see the potential that support has arrived in this market. Here we see the long term view of Gold and its entire rally which we are calling the 21st Century Gold Bull Market. Of extreme importance is the long term white parallel trend channel that has provided the upper and lower price patterns for gold. There is a second channel that is forming in which the “super bull’ market might be marching to. While the first white channel graphs the UPTREND boundaries of the gold market, the second Red channel graphs whether gold has begun a new MOMENTUM trend that is going to move the price much higher and much faster than we’ve seen in the past. We can see the lower red line has provided support to this market and the most recent drop hit the bottom of that channel and slightly penetrated it when gold reached 1044 on this correction low just over a week ago. Since then gold has bounced back into this channel line after a brief penetration refusing to have a weekly close below it thus far. The “super bull” turning point is the 1200-1230 area where the white and red trend lines converge.
Should gold break above that area odds will suggest that the bulls are firmly in charge of the long term and much higher prices should ensue from there. We will address that when gold breaks above shorter term resistance and if we get close to these trend lines. They are the most important LINES OF THIS YEAR on the upside. To the left of the chart here is a volume at price diagram that shows the amount of buying and selling at a particular price range. We can see that the low of last week was very close to an area where there is much more buying than sell according to the bar graph, and I’ve drawn two key red horizontal lines from that area to show its relation as to where it meets price. That first line coincides with the gold peak of 2008. The 1044 low of gold’s price was very close to that 2008 top as price has made a “return move” to the old highs in order to test the original breakout area. This is typical action when a major breakout is under way. When we also observe that price touched the moving averages on the weekly at the lows, the lower red channel lines, and a volume at price area simultaneously, odds would favor a good bounce and that is what we are getting right now with this gold rally of 60 dollars. Now the real test of moving above resistance is upon gold. The oscillator at the bottom of the chart has not turned up yet (see Red arrows). We can see that in the past 10 years when it does turn up the odds heavily favor higher prices. The only exception was during the 2008 crash and I’ve highlighted that area with a WHITE arrow. Here the oscillator gave a false signal and gold indeed did drift lower into the 2008 bottom. Was the 2008 credit/debt crash a onetime event? With the action we’ve seen recently in the Greece situation, it suggests that as long as nations continue to cover debt defaults with more printing of fiat currency, the gold market should continue higher. But is not a one off event, and it needs to be watched carefully. With that one exception all other indications (Red Arrow) have provided good buy signals. From a weekly basis we are still waiting for that indicator to touch the zero line and turn up. Again, I want to emphasize that indicators are coincidental information and trading decisions should be made on PRICE and not technical indicators alone. In other words, this indicator is not absolute and if gold turned up here I would try and follow it rather than wait for this indicator to bottom. With that said, I'm watching. The other clue that exists on this chart is that each major high at the upper white channel line has resulted in a correction that lasted until gold touched the lower white channel line before a major bottom occurred. This is why it is important we have two channels to look at. If the “super bull” gold market is on then the red channel line might represent the extent this correction may pullback to. If we are still at the same momentum we've seen over the past decade, then the potential to continue lower into the spring is something that we should expect. So it will be key to watch the action at this area. Analysis of Medium term trend From a weekly standpoint we can conclude that the price low that we reached two Friday's ago was certainly an important point. Price remains above the red channel line and the moving averages on the chart leaving the medium term trend up but clearly in corrective mode since December. Since the weekly bars have yet to form higher highs and higher lows, price has not yet TURNED back up on the weekly chart nor has the oscillator at the bottom of the chart. ALL OF THE OTHER SIGNALS and price turns did indeed have this oscillator turn up (except the 2008 crash). With this in mind, the chart suggests gold might still have some consolidation of price over the next few weeks or month until that oscillator does turn up. It is NOT necessary, but certainly should be a consideration. The important thing to remember about this medium term is that a consolidation range for gold on this timeframe has a somewhat large range in the 1050-1180 area. Thus it is entirely possible for gold to move to the upper white channel line and then back down to the lower red channel line over the next month or into early spring. The next few months seasonally are usually choppy to lower so the potential for gold to remain range bound in this area is very possible. If it did it would allow the oscillator to bottom and turn up. Thus we could see gold in a large trading range for a while here as we move into spring. When we look at the long and medium term trend, gold has not by any means TURNED BEARISH as of yet. What has developed is a medium term correction which we are now watching for a potential turn back up. Let’s look at the daily chart.
Time and cycle considerations The rally from the July 2008 low lasted approximately 103 days and the correction we’ve witnessed has lasted 43 days. For those aware of the Fibonacci ratio of 23.6 the length of time of the rally is 2.39 times the length of this correction. From a symmetry standpoint it’s an interesting number. For those who follow Martin Armstrong’s 8.6 time cycle, it is interesting to note that 103 days is 12 cycles of 8.6 and 43 days is 5 cycles of 8.6. If we count the number of weeks after the intra-week high, the low at 1044 occurred during week 9 of the pullback. Therefore there are a lot of clues from a timeframe standpoint that would support a potential END to the medium term correction. This is certainly the BEST POTENTIAL LOW POINT since the December sell-off began that has appeared on the chart. Now that gold has initially supported we now need price to confirm that this is a potential low. In order to do so gold needs to now move above our key moving averages. Until it does so there remains potential for potential lower prices to month end. THE time set up described above remains important. This week will be an important week for resolve. Support One of the other important factors is that the white horizontal support line of the triangle although penetrated to the downside in price, had every daily bar at least touch the support line and now price has now reversed back into the triangle. Professionals are well aware of support lines and that is why I emphasize it’s not the breaking of the channel but what price does immediately afterwards that matters. At this moment it looks like gold has found short term support at this key area. Coming into this week KEY support now lies at the 1040-1060 area in gold and most importantly the horizontal white line. Now the test of whether it can continue higher and break above the overhead resistance begins. Additional minor support is the 1056-1063 and 1073-1078 area where we saw reversals back up of off selling last week. Resistance Directly ahead is key resistance for gold. In the above chart we can see that we are near the orange downtrend line and the moving averages are just above that line. This puts resistance Weekly resistance in the 1108-1135 area in gold and 108-112 in GLD (gold ETF) for the coming week. This can be reduced to the 1108-1115 area and the 1125-1135 area. Cycles During the course of this bull market leg there have been a number of end of month lows, and rallies to mid month. December was an exception. The question coming into this week is will gold have a mid month peak and a pullback to month end? One of the reasons I am leery is that I mentioned last week that many participants are picking up on this cycle and as we saw in early February even though we rallied the first few days price made a new low on the 7th of February before bouncing up again. While the cycle is still in force, it is beginning to get murky. While it’s good to look at cycles - the KEY INDICATOR is always price. I’m not sure how much confidence we should place in this week producing a high? We want to be on guard for it, but we don’t want it to RULE our opinion. Lets expect it for now, but only at the resistance points described above and let's not anticipate it but make sure its taking hold before acting. Let’s look at the 60 minute chart of April Gold. Resistance The 60 min chart shows the following areas of resistance and confirm the one’s listed off of the daily chart earlier in the report. 1108-1115 – this incorporates the resistance lines at 1100 and the slow red moving average at the 1108 with a little room for throw over. 1125-1135 – this incorporates the last key high in February, the 50% gold speed resistance line and the 50% retracement level of this correction. So far none of the key big moving averages have crossed over to the upside with Slow red, Medium Green and Fast Yellow inverted. The only averages that have crossed are the very short term tiny yellow and purple averages.
Price pattern Gold has a key week in where the trend going into month end should be established this week. The price pattern is overlapping and that does keep the potential of a high developing here and another pullback alive. Should we break above resistance and begin to pattern impulsively then we can be more certain that a rally is underway. As of right now, it still looks like a bounce type of pattern. Commitment of Traders There has been a marked decrease in the short position of the gold and silver markets to the point that we have returned to the positions that were evident last September just before the launch of the bull leg that led gold to the 1200 dollar area. While it’s still a high number Trader Dan Norcini made some interesting observations this week explaining that since the open interest on shorts is back to where it was when gold was 950-980, the fact that it’s at 1100 suggests that the OVERALL battle is being won by the bulls. Here’s a link to the chart from Jim Sinclair’s site on the COT short position. http://jsmineset.com/wp-content/uploads/2010/02/COT-chart-2-12-2010.pdf Global It is questionable if the market is going to BUY the Greek bailout scenario. If they don’t we want to be on guard for gold to potentially detach itself from other markets, but also be aware if it decides to follow. China continues to try and tighten and the United States keeps on printing and Europe is addressing the nations in its union that are flat broke. Soon the individual states in the USA are going to come to the same fork in the road. US Dollar The big discussion in the equation is the US dollar strength. Since the Euro makes up 47% of the dollar index and the Euro is collapsing it stands to reason that is where the dollar strength comes from. I ran the US Dollar versus gold just to be sure and it confirmed. The chart below graphically shows that the US Dollar throughout its entire rally has kept ahead of gold but not as much as the index is suggesting. And this comes at a time when the dollar is in a strong uptrend and gold has been in its biggest correction in a year. While the US Dollar index is at levels not seen since last July on the index, when measured against gold, it is no higher than it was at the end of October. Technically, MACD is barely holding its own but has not yet flashed a sell. The chart tells the story; the US Dollar is benefiting from the drop in the EURO much more so than gold. Since gold is at a seasonal weak point this could continue a while longer. Should the EURO ever bounce up again (LOL) while gold is rallying, the dollar could drop quickly. For now, the dollar is still in an uptrend and we will monitor for further developments.
Seasonal aspects What about the seasonal trend of gold? Well it’s certainly another factor that would suggest that a mid month peak potential is still a distinct possibility. The seasonal chart below shows that gold is entering its weakest period and that gold bulls need to be alert to this and MUST RESPECT it also. This chart shows on average that the price of gold is USUALLY under pressure for the next 30 days. We need to keep in mind that this is an average and not an absolute. What makes this year tricky is how gold peaked very late in December and has already been correcting for a few months. While we can use the seasonal as a guide it is important to remember that when a seasonal inverts and begins to trade inversely the price rise can be dramatic. This is due to supply constraints that are not usually there develop and this also finds seasonal players on the WRONG side of the market and therefore must COVER their positions. In the end, PRICE is always what is in charge and a seasonal inversion can cause dramatic price changes for the simple fact that they are unexpected.
What about stocks?
There is no doubt that funds like Tocqueville have some bullish aspects to the charts. Of particular note is the divergence in RSI last week. While the fund made a new low, RSI did not. This comes at a time when William's %R at the bottom of the chart has just bounced off of its most oversold condition in a year and price has bounced off of one of the lower channel lines. In addition MACD seems to be turning up. One week does not make a trend but the technical action on this chart is certainly one that suggests that an attempted bottom at least on the short term is being attempted. Key support is the lows recently established and the 200 day moving average in the 48-49 dollar area. Major support on the longer term chart is the 42-45 area. GDX and HUI, NEM, and AEM are all at the CRITICAL 200 day moving average. This begs the question as to whether the gold stocks are forming a bottom here OR ARE THEY LEADING THE STOCK MARKET LOWER? And there is one more way to look at it. Since they peaked in December and the stock market moved higher into mid January, could we say they have detached from the market? While we don’t know that answer, should the stock market sell off and the gold stocks start rallying the change will be here. Just something for RADAR. Until we see gold rally on a stock market sell off for more than a few days we will go with the "all markets doing opposite of what the dollar is doing for now. Bottom line We look for gold to test the resistance areas listed above somewhere in the 1108-1135 area. Should we exceed 1135, we’d look for a rally to 1147-1163. Pay particular attention to the 1110-1115 area and the 1125-1135 area for potential price peaks this week. Support is the 1040-1060 area, but can be narrowed down to 1056-1063 and 1073-1078. On the downside: The Seasonal is pointing down and the bigger moving averages have not crossed and turned up yet. The most important points of the week are the resistance areas mentioned above. This still leaves the potential of a mid month peak and one more pullback into month end or a sideways pattern for this week once the highs are established. Since the low point we’ve rallied some 60 dollars a pullback of sorts should be in order at some point during the week. Another factor is the overlapping price pattern on the 60 minute chart which is usually indicative of a bounce more so than the beginning of a sustained rally. Price has not broken out of the triangle yet to the upside but this is more of a neutral factor than bearish. SHOULD price re-penetrate the lower line that would be a bearish factor. On the upside The fact that we held the major price supports and rallied back into the triangle was a plus for the bulls. But until gold pushes above resistance the downside has so far been only neutralized. Closes above the 1110-1115 area would add to the case and closes above 1135 would certainly go a long way in re-establishing the uptrend. The reversal’s we saw at 1063 and 1078 on the dips last week were also constructive. The commitment of Traders showing a lot of short covering was also a plus for the bulls. The US Dollar is not as strong as it seems to be when compared to gold. Summary: It really comes down to whether gold is going to be able to sustain a move above the resistance areas mentioned above and which way the price is going to break from the triangle. We will be monitoring that exact factor each and every day on the daily charts. Gold still has some work to do to re-ignite the upside trend. Last week was a good start but follow through will be needed to confirm that the correction from December is over. Let’s see what happens at key resistance and stay tuned to the daily updates. May you prosper this week ===========================================================
Weekly Gold February 9th 2010 - trying to recover Weekly Gold Update Let’s begin this week by looking at the key points we laid out in last week’s gold update. Here are the main points we discussed in bold type: “Gold is either going to bottom Monday and begin a bounce or it’s poised to take a good hit into mid week.” -- Gold did both, a bounce began on Monday that rallied 50 dollars into Wednesday and from the Wednesday high of 1122 gold dropped to 1144 on Friday, a 78 dollar drop. “A break below 1067 would indicate a run down towards 1025-1045 in gold.” -- The low in gold last week was 1144 (one dollar from the high end of the range) See next to last sentence in that report, as we did also mention 1035 in the report. “Resistance for the week in gold is the 1099-1106 area followed by 1115-1125.” – The high for the week was 1126 (one dollar above the upper range target) “From a cycle standpoint gold is due to start a short term bounce sometime this week. However that does not preclude a break of 1070 or a steep price break. Let us not put our faith on the cycle beginning.” -- After following the beginning of the month cycles, we suggested not to put our faith in this months. How about the dollar? “The bottom line on the dollar is that yes we are at resistance areas and a pullback should develop. But there is no evidence at this time that a top is in place as of yet. “-- The dollar made a new high for the week. How about the chart pattern? We discussed the potential of a descending triangle. We said we were not sure which way it would go and that we’d have to watch the upper and lower trend lines. The blue portion on the left was the action that transpired. We went right to the top line, and then broke thru the lower portion of support.
Let’s look at the weekly chart: First we’ll look at duration: The current pullback has now completed 9 weeks. The first leg down of the 2008 peak at 1033 lasted 8 weeks. The pullback from the 2009 peak at 1007 lasted 8 weeks. The second leg down in 2008 from the 969 peak lasted 9 weeks if we count the top bar. The 2007 pullback from April lasted 9 weeks. From a timeframe standpoint this pullback has just about matched the length of pullbacks in gold over the past three years. Obviously if we look at the entire pullback in 2008 the length is much longer. There was a pullback in 2006 (not shown) that lasted 10 weeks. Historically speaking gold market pullbacks have bottomed and at least bounced up for a few weeks near this length of time. So at least there is precedence for a bounce from this time area.
Technical indicators: The Williams % R indicator at the bottom of the chart has reached an oversold condition for the first time since 2008. Once the indicator rises back above the -80 area the chances increase for a market bottom. There was one fake out in 2008 on this indicator. While I don’t rely on technical indicators to trade it is good to look at them as a coincidental indicator meaning if a bottom does look like it is developing, I would look at this indicator for additional confirmation. RSI (Relative Strength) at the top of the chart is at the 42 area and is at its lowest point since the November 2008 bottom. While it’s not indicative of a bottom it does lend to our observation of the oversold condition. In a bull market, an oversold condition usually markets a low and an overbought condition can go on for a while. If we look back at the Williams % R at the bottom of the chart we can see how long gold would remain overbought and how quickly an oversold condition would be reversed. IF GOLD IS STILL IN A BULL MARKET LEG ---- and this is just a correction then gold should not remain oversold for a long time. If gold is now in a bear market leg as was the case in the second half of 2008, then the potential for an oversold condition to remain will have potential. Trend lines: Most charts that analysts have been posting a broken channel line and we agree with that analysis. In this exercise the gold channel line I’ve drawn still has not been broken. While it is “fitted” to make last week’s low touch the line, it still connects the important June and August 2008 weekly lows. This is not to say that this line will not be broken either. What we are attempting to do is give gold the maximum leeway on this pullback. Important lows: The next important low is the OCTOBER week 4 low. If I recall correctly that low was in the 1026 area and was the only pullback gold had that was lower than the old high of 1033 once it had been broken to the upside. It was from this point that the rally to 1200 was launched. Moving Averages: I don’t use standard moving averages but the 50 day moving average is at 1118, the 100 day at 1093 and the 200 day at 1019. We pointed out a few weeks back that a move to the 200 day average is “normal” market behavior and that we should expect such an event. The 2009 low last April at the 860 level was the last time gold traded at the 200 day. On our non-standard averages on the above chart, the 1011 area is where our next moving average lies. However another IMPORTANT moving average I use on my 60 minute charts (fast yellow) when applied to a daily chart would show the 1052 price zone. SUPPORT: The 1020-1050 encompasses a lot of weekly support areas. This would take into consideration the 1026 low of October 2008, the old time high at 1033, last week’s low of 1044 and an important moving average I use at 1052. Our other two moving averages are at the 975 and 1011 area and would be where we would look next for support should the 1020 area fail to support. From Triangle to A-B-C correction. The first leg of the pullback was 152 dollars 1227-1075. The bounce up in January got to 1163. If the current leg down were to be equal in length the lows for this current new leg down would be the 1011 area and EXACTLY where our RED medium moving average is. Now that the triangle has been broken, analysts are pointing to and Elliot wave A-B-C correction. (Wave a from 1227 to 1075, wave b from 1075 to 1163, and we currently are in wave c) One of the ABC variations does have an equal wave a and c so this is yet another area we need to watch. Based on the above information the key support areas would be the 975-1011 level, the 1022-1033 area, and the 1043-1053 area. A break of the first area 1043-1053 would lead to the next area and so one. The chart below is the Gold ETF (GLD) and there are a few observations we can make. If you look at each test of the moving averages on this chart we can see that when price arrives at these averages it will usually spend a while there. We can see that price will spend from 5-7 weeks near those averages whenever it makes a visit there. (April 2009 could be argued as a test I guess). But besides that historical data suggests that gold could be in this price area for a while and could remain range bound. Wild Card The wild card in all of this is the escalation of the debt situation on a global level. Recall as early as the Dubai situation (and even before that) we’ve advocated that this scenario was one where we mentioned could initially put pressure on the gold price. Now that it is at the forefront of media news and in the same fashion that occurred in 2008 the US Dollar has been in a strong rally and gold, commodities, and stocks have been under pressure. The Euro (of which we’ve been bearish) is in a very strong downtrend as well. As long as this scenario continues to escalate the potential for gold to decline cannot be dismissed. And the list is growing. Greece, Spain, Iceland, UK, USA, Ireland…….and the list goes on. Should a default situation develop the rush to deleverage debt and cash in some (cow) chips could give the US dollar a boost as was observed in 2008. Iranian threats The Iranian president has been on his podium of late warning that a major surprise is coming on the anniversary of the Iranian hostage crisis which is February 11th. The USA selling Taiwan 6 billion dollars of weapons last week has infuriated the Chinese and since they are supporting the Iranians it makes for a potentially explosive situation come next week.
The United States Compounding the fundamentals is the fact that the USA is bankrupt in every conceivable manner. While California is in the spotlight, the situation grows dire as a host of other states are in fiscal trouble as well. This is coming at a time when the recognition point that the so called economic recovery is nothing more than a government sponsored stimulus plan that is at best slowing down the collapse of activity and that the job situation continues to lag way behind all other recoveries. The new Presidents satisfaction polls are dropping fast and his party seems to be in trouble in the upcoming elections. New rules where money market funds have the right to withhold withdrawals and banks that are folding left and right barely make the headlines and the economic activity that gets reported has become so questionable that everyone has accepted that the figures are nothing more than manipulated statistics. The rest of the World There is no doubt that Greece, Spain, Ireland, UK, Japan and all other debt ridden countries are in a world of hurt of which there seems to be no escape. While we are not certain as to how this all plays out it is hard to fathom that everything is going to be ok and that the world is going to continue in the manner which it has. Eventually this has to come to a head and this is why many have turned to the gold market as the last refuse of maintaining purchasing power. The only question that remains for the long term gold market is whether there is one final swoon down before a parabolic explosion to the upside. Gold has broken to all time highs and the chances of this being a long term fake out does not have high odds but still cannot totally be dismissed. Outlook for the coming week: We’re expecting a bounce towards the 1085-1110 area and our best take is a peak this week that leads to another pullback towards month end. It is still too early to call a major metals bottom but rallies back above the 1110 certainly would warrant the potential. Anytime we are below the 1050 area gold is vulnerable to further pullbacks. Support is the 1010-1040 area followed by 975-980. ==================================
Weekly Gold January 31st 2010 - At key support area During the month of January we laid out a key area of 1160-1183 in gold as upside price resistance and the 1070-1090 area as very important support. The basis for price projections were based on many considerations but the most important was the longer term trend channel lines of the gold market. In order to focus on these channel lines I’ve used the gold ETF (GLD) so we could get a long term perspective of just how important these lines are and how well they have identified the tops and bottoms of gold over the last five years. While some of the major peaks and bottoms had price penetrations, the lines provided the major trend change points. If we look at the chart below we can see a five year main channel with upper and lower lines. On the lower channel line we see that price has touched that line every single year. In fact the first three years we can see that gold touched the lower line many times. After a major rally into 2008 the crash once again brought gold down to this lower channel line. Indeed the major low penetrated that line for a five week period before the major reversal back up occurred in November of 2008. A close look shows either the second or third week of January 2009 had a one week pullback that touched that line also. If gold has touched the lower main channel line for five years in a row then, unless it breaks above the upper channel line, the ODDS suggest that at some point in time this year, Gold will touch the lower channel line once again. Since we are in a medium term correction and gold is at one of our very important points, let’s look at where the most likely lows for gold should occur this year.
The first point just happens to be where the gold price is at right now. I’ve drawn a small line below the December (1075) and the January (1074) spot price lows. Within the main five year channel there is also a mini channel within the larger channel. The mini has orange lines and was the channel that gold price followed throughout 2009. We’ve described it in our updates as the momentum channel. If we look at the price dynamics we can see that the December 2009 correction penetrated that lower orange line briefly. The early January rally was really an attempt on gold’s part to re-enter that orange channel in an effort to maintain the 2009 momentum channel. Upon close inspection we can see that the rally made it back up into that orange channel for a brief time when the January price peak occurred. More important however is that price peaked when it touched the upper main five year channel white line. Consider how amazing that price peaked right where the main five year channel line and orange channel lines meet. Since that major intersection of price, gold in two weeks has dropped 90 dollars confirming for us that the upper channel line is the most important resistance line in this entire bull market. The current cycle and chart above shows that gold reaches this upper main channel boundary every two years (2006, 2008, and 2010). Let’s zoom in and by using the chart below look at where gold will most likely bottom during this medium term correction.
We’ve reduced the chart from five years to just over two. The first area we’ll discuss is where gold is right now. I’ve drawn a small support line under the lows of December and January at the 1070 area in gold or the 106 area in the ETF chart above. I’ve also drawn a small down trending orange line that hooks up the upper orange channel line to create what technicians call a TRIANGLE. In the technical world, there are many triangle variations and for the most part occur during consolidations of trend where the market is taking a pause if you will biding its time as it makes it mind which way the next move will go. Many are continuation patterns. This type of Triangle on the chart is called a Descending triangle and it is a considered a continuation pattern.
Implication A Descending Continuation Triangle is considered a bearish signal, indicating that the current downtrend may continue .A Descending Continuation Triangle features two converging trend lines. The bottom trend line is horizontal and the top trend line slopes downward. The pattern illustrates lows occurring at a constant price level, with highs moving constantly lower. The pattern displays two highs touching the upper trend line and two lows touching the lower trend line. This pattern is confirmed when the price breaks out of the triangle formation to close below the lower trend line. Volume is an important factor to consider. Typically, volume follows a reliable pattern: volume should diminish as the price swings back and forth between an increasingly narrow range of highs and lows. However, when breakout occurs, there should be a noticeable increase in volume. If this volume picture is not clear, investors should be cautious about decisions made based on this pattern. Important Characteristics Occurrence of a Breakout Technical analysts pay close attention to how long the Triangle takes to develop to its apex. The general rule is that prices should break out - clearly penetrate the lower trend line - somewhere between three-quarters and two-thirds of the horizontal width of the formation. The break out, in other words, should occur well before the pattern reaches the apex of the Triangle. The closer the breakout occurs to the apex the less reliable the formation. Duration of the Triangle The Triangle is a relatively short-term pattern. It may take from one to three months to form. Investors should see volume decreasing as the pattern progresses toward the apex of the Triangle. At breakout, however, there should be a noticeable increase in volume. A strong volume spike on the day of the pattern confirmation is a strong indicator in support of the potential for this pattern. The volume spike should be significantly above the average of the volume for the duration of the pattern. In addition, the volume during the duration of the pattern should be declining on average. Compare prices to the 200 day Moving Average. When prices are close to or touch the 200 day Moving Average this signal is considered stronger. Criteria that Refutes No Volume Spike on Breakout The lack of a volume spike on the day of the pattern confirmation is an indication that this pattern may not be reliable. In addition, if the volume has remained constant, or was increasing, over the duration of the pattern, then this pattern should be considered less reliable. I want to emphasize that although this pattern usually has a BEARISH outcome it is not an absolute. It is good to categorize a market pattern but one should always be aware that following the price regardless of direction is the key. Should the gold price pierce the upper down trending orange channel line of the triangle, ODDS will favor that price will move up to the upside. The other important thing for us to consider is that a break of the 1070 area in gold or the 105 area in the ETF for gold (GLD) would suggest a move to the next lower support area. The next area on the chart we see are the two moving averages (one blue and one red). A look at how price has interacted with these moving averages gives them credibility. They provided KEY support for 6 months in 2008 and when price finally broke below the averages, gold had a good sized drop. They also provided resistance that year on the first bounce from that drop in October 2008. Even the 2009 rally took five weeks pause before moving above the averages and then PROVIDED price support no less than three times in 2009 from April thru September. These moving averages are yet another area where gold has a very good chance of reaching at some point in time this year. Should gold break the 1070 area and the ETF 105 zone, odds will favor that gold’s price would drop to these key weekly moving averages. Currently that would put the gold ETF at the 98 to 101 price zone. That would equate to the 1005 to 1035 area in spot gold price.
Just below the moving averages we have a line that is called the DOWNTREND line. This is a line drawn off all the major highs of the 2008/2009 consolidation we had in gold. When a major long term breakout occurs a market every now and then pulls back to the original place that price broke out from is called a RETURN MOVE. on the ETF or 945 on spot gold would be considered major uptrend channel support. Let’s review: Support is 1070 gold followed by 1005-1035 and the 945-975. These are the areas we will monitor should the gold market continue it’s correction lower into the spring. We will modify these areas depending on the timeframe that gold reaches these areas as the moving averages chance and the price points of the channel lines are reached. The additional evidence that exists for further price erosion is as follows. 1) The Upper Main channel trend line has been hit three times since 2005 (see first chart). Each time that the upper line has been hit the pullback has been all the way down to the lower channel line before the correction ended. 2) The upper trend line on average gets hit every two years (2006/2008/2010). A consolidation period where price pulls back has always occurred and lasted at least 6 months thereafter before price began another major rally. 3) The most likely time for a price high in gold is Winter in North America. (Spring in strong years). 4) And then……………..There’s the US DOLLAR. We’ve used this chart before a while back to make our case for a US DOLLAR rally because of the massive volume we saw at the lows in the sawbuck. We’ve discussed the dollar since mid December and as we said on our last update…………the price pattern looks bullish. Last week was another big up week and is showing acceleration. The Euro has fallen thru the floor dollar bears have been calling for a Euro rally from 500 pips ago. While the Euro is approaching a bounce area and the dollar at key resistance areas on the 200 day average, the price pattern remains BULLISH on the chart. It is a paradox but the most profitable trades are the hardest ones to take. The dollar is the hardest trade to take this year. The majority give it zero chance. The chart is arguing for the moment, that the rally is still in force. The Euro is the most heavily weighed in the dollar index and its collapse has gone a long way to help this rally. But the plunge in copper, grains, and just about everything else in the past few weeks suggests that the SYSTEM OF THINGS is still broken. When we live in a world where its either the dollar……………….or every other asset……..I have to conclude that the system is broken and the potential for moves that make no sense can continue. The bottom line on the dollar is that yes we are at resistance areas and a pullback should develop. But there is no evidence at this time that a top is in place as of yet. So unless you playing an call option that expires in a few weeks, the trend is still up.
But what about the upside for gold ? The first thing we need to look for is if gold holds this triangle area at the 1070 area or 105-106 in this ETF for gold. That does not mean that if gold hits 1067 that it can’t bounce right back in the triangle. It would have to be a quick move and back up however. So as long as gold holds this area, the potential for gold to trade in a sideways fashion this week in between the upper orange line and the white support line at 1070. A break of that 1070 area and a move to the blue and red moving averages would come into play next. From a cycle standpoint gold is due to start a short term bounce sometime this week. However that does not preclude a break of 1070 or a steep price break. Let us not put our faith on the cycle beginning. GOLD NEEDS TO SHOW SOME STRENGTH and that was not visible last week. Each bounce was met with selling. Resistance for the week in gold is the 1099-1106 area followed by 1115-1125. Support is the 1070 area, and if broken we expect the 1025-1045 area or the 999-1012.
At this point in the game and going into this week, the odds are a tossup as to which way gold makes its move. The weight of the evidence suggests that when push comes to shove there is more weight on the downside than up. It’s obvious that gold is at a KEY TURNING POINT and if it breaks we can expect another short term leg down. On the other hand, if gold were to rally back above the orange line in the coming month, it would set up another test of the 1160-1183 area with potential for more. What next ? Gold is either going to bottom Monday and begin a bounce or its poised to take a good hit into mid week. If we hold we expect that the week would be gold working its way towards the resistance areas listed above. All we can do at this point is watch and play the breaks. If you’ve been following our updates you already know that this time of the year is when gold begins one of its weaker times of the year where one is in a position where he/she has been built up some cash. On the upside for the gold bulls, should gold start a rally from here and bust thru resistance we listed earlier then the chart pattern odds will quickly grow into a bullish pattern which would be indicative of a February attempt at the highs established in Dec/January. Keep in mind we could still make a new low in the first half of the week and the bounce would be in the later part of the week from lower levels. A break below 1067 would indicate a run down towards 1025-1045 in gold. We will be monitoring the action on our daily updates. It should be an interesting week.
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January 17th 2010 - Major cycles converging On the flip side of the gold coin......... Our forecast from last week for a peak in the 1160-1183 area was achieved early in the week as price hit the 1163 area while our listed support for the week of 1110-1115 was tested late in the week as price retraced to 1117 before ending the week at the 1131 area. There is POTENTIAL OF A MID MONTH CYCLE PEAK in this time frame. This cycle was our basis for a mid month rally. However this monthly cycle does not produce a top on the exact day. Like all price fluctuations, it has a standard deviation. (it usually can arrive early or late by a few days). There are times like in November where this short term cycle can be over run by a medium term cycle and instead of gold correcting from mid month into months end, the CYCLE inverted and extended one full cycle producing a high. What I am getting at is there is nothing that says GOLD HAS TO PEAK HERE AND GO sideways to lower. But it usually does. The chart below is XGLD - The World Gold Index and is a bit different than what we usually publish. In this chart the upper trend from 2004 has price bumping right into it --- right now !! We can see that the December high penetrated the channel line. This also happened at the 2008 peak and represents the week that LEHMAN BROTHERS DECLARED BANKRUPTCY. talk about a market discounting news as that peak would last 19 months before it would be breached again. THERE IS A SECONDARY PARALLEL CHANNEL POINTING INTO OUTER SPACE AND MUCH HIGHER. Its channel lines are drawn off the trends of 2006 and 2008. The only thing stopping gold from continuing higher into this channel, is the line that price is up against and touching right now. That line is the MAJOR 21st CENTURY BULL MARKET UPPER TREND LINE. In other words, it's the line that has stopped EVERY bull market rally in gold for the entire decade run of gold. It represents the current maximum MOMENTUM PRICE POTENTIAL that gold has achieved in this bull market and is the most likely place that corrections usually take place. For those who are anticipating a market melt up in gold...........we believe this line represents the most likely area where a breakout above it would signal the beginning of that move. In other words, should gold exceed beyond this resistance line, a "MAJOR MOMENTUM" shift could possibly occur and gold would enter a new acceleration phase higher. The other side of the (gold) coin is this............ It is also where a failure for gold to exceed the line would suggest that another leg down in price would unfold before this pullback is complete.
When is the best time to buy gold ? The chart above shows a money flow index at the bottom. In the last 6 years is shows that the best time to BUY GOLD is the JUNE/JULY TIMEFRAME or near there. January buys are usually a TRADE and not a good place to be buying VALUE. That is not to say that the fall does not provide opportunity either. But is does mean this: GOLD IS NOT USUALLY A GOOD BUY THIS TIME OF YEAR. IT IS MUCH RISKIER. In fact, if we are unbiased about it.........it's usually a sell near this time frame. Back to the signals (the red arrows) As you can see above, not all of the signals produced big rallies.............but a whole bunch of them produced tradable rallies......some big ones too. There was only one year that produced a buy this time of the year and that was in 2007, which produce a rally to late February but not significant. We believe the current signal is of the same caliper..........but a move above that trend line would change the situation and call for higher prices. That trend line then, is a good PIVOT area to keep an eye on. This along with the other factors suggest the potential for the rally to continue into February is still alive but at this point in time we think in a muted fashion and not before a potential pullback into the end of January. It comes down to this.........CALLING A RALLY in September like we did was in line with seasonal factors and a price pattern breakout. At THIS POINT IN TIME...............the potential that gold will embark on a SUSTAINED rally (sustained) is the key word, is NOT THE ODDS FAVORITE. A move above the major channel lines would have us revisit that forecast. Lets look at another chart. The chart below shows the entire bull market run thus far. Notice how January prices are usually very near the top price range for the first half of the year and that corrections in gold usually develop near this time frame. The only exception is the 2006 time frame and even in that year look how January's price remained pretty much the peak through February and March. The point we are making is this. There might be one more rally leg into February in gold but the ODDS ARE GREAT THAT A PRICE PEAK FOR A FEW MONTHS IS NOT THAT FAR AWAY in gold. The potential that we are already in a correction and all we've just had a bounce is also feasible. The monthly chart is an interesting one in that we can see the MONTHLY channel construction here is different than our weekly channels. In this construction, it shows that the long term dotted black channel line was exceeded in November and the month of December is merely a pullback to test that channel line (January not shown). The dotted line has credibility as we can see how many times it stopped gold from breaking above 1000 until the month of November 2009 finally produced the break out. Further adding credibility is how LONG the bar was when we finally exceeded it. The red channel represents the "momentum" channel. We can see that this channel has the rise in gold at a much steeper level. Each time the upper red line has been hit however, it has produced a sizeable pullback in price and time. Each time the peak month was registered a reversal month occurred. (prices made a new monthly high but closed below the previous months close).
The bottom line to this discussion is if your an investor, being fully invested in gold during the February/March timeframe can be dangerous to your portfolio. Keep that in mind if your loading up on stocks here. I'm not saying DON'T BUY.............I am saying you should be prepared for a likely correction at some point in the not to distant future.........as that is the odds favorite. Now if you believe that the system is going to collapse before this coming summer and that the New York COMEX will default in gold delivery, or a major event is about to happen then that is a different story. Under those scenario's GOLD HAS the potential to explode higher at any time. If you believe that, you should not wait. You should buy RIGHT NOW. Make sure you've got guns and butter as well. We only have historical data and odds to proceed with. SHOULD GOLD EXCEED THE UPPER RED CHANNEL LINE........then the odds will INCREASE that gold's rally will continue into the APRIL time frame and move much higher and the above scenario's could indeed come to light. Thus, we would use the upper red channel line as our PIVOT where should price exceed it, we would begin to entertain a melt up scenario for gold. EVENTS The next GOLD DELIVERY MONTH IS FEBRUARY. December was a non event and has quelled talk in this respect. It will be interesting to see if it begins to pop up again. With USA slapping China with steel tariffs and Google making a bee line out of China after finding out that their team was compromised and their CODE for G-Mail was stolen and therefore allowing the monitoring of dissidents, the potential for relations to continue to deteriorate is something to keep on the radar. The US Dollar chart still remains in a bullish pattern .............but the weakness seen in the Euro is making the USD look better than it normally would. With that said...........IT DOESN'T look like the dollar rally is complete yet............and that is a short term negative for gold. Here's a quiz for you.........the dollar index is at the 77-78 area. Where was it 15 years ago ??? It was at the 80 area...........just a few percent higher. This illustrates how everyone else is printing. (it also speaks as to how undervalued gold was in 1995). The debt situation on a national level (Dubai, Greece etc) also needs to be watched. If there is anything that could bring gold down this year (and everything else) it would be another credit crisis situation like we had in 2008. The Tungsten in gold story has been quiet of late. OPTIONS EXPIRATION at the end of the month is another factor that could assist in a pullback to month's end. So how do we play next week in the short term ??? Lets look at another chart ------ again the gold etf (GLD) Thus far we our parameters for January are intact. We've listed support at the 1070-1095 area. The low for the month so far is 1093. We've been looking for a mid month rally to the 1160-1183 area. The high so far is 1163 ..........and we've reached mid month. Thus, our forecast has met the minimum price requirements also the time requirement has been met.
WHAT NEXT ? There are two channels on the chart above of the gold ETF (GLD). The large white line channel is the MAIN LONG TERM 21st Century bull market channel. As you can see price is at the upper end of the BULL MARKET RANGE............an area that has provided all of the major highs for this bull market. Within that channel we have what's called a MOMENTUM channel and it is the ORANGE colored line within the current price rally that I am talking about. Look how price is just barely maintaining a foothold within the lower boundary of the orange channel line. This can be a guide to some extent over the next few weeks........and potentially into February. A break below the lower orange channel in price will be the first clue to the outlook that gold has temporarily peaked in the short term and another corrective leg down can develop from here into month's end. Another scenario to consider suggests that if GLD breaks below the lows of last week, the market should come under pressure to pullback into month's end. Finally, support comes in at the 107 -109 level. Any break of that area .........and the odds will favor a pullback into month end. Those are the parameters for next week for those playing the short term. Until we break below those price areas, the short term is still alive..............but must mount a push up this coming week to remain in that channel. From a gold PRICE perspective, AS LONG AS GOLD HOLDS the 1110-1115 area the uptrend from the December lows remains intact. A break of 1106-1110 would suggest potential new lows on this pullback..........or at least a test of 1070-1086. Resistance for the coming week remains the 1160-1183 area for gold in January. There is also minor resistance now in the 1145-1154 area. Bottom line : Neutral for the week in the short term........ This short term chart below shows how the 10 day, the 39 day, and the 50 day average are all at the 1130 area...........right where price is. Even the indicators (RSI - MACD) are at the bull/bear area as well. Money flow has already turned bearish. A look at the Aug/Sept/October pattern on the chart shows how we can go sideways to lower over the next few weeks. A break of the short term uptrend channel and support we listed above will suggest that scenario is underway. Until then, the potential for gold to carry higher to resistance this coming week still has potential as the 21st to 22nd of the month has important cycles. In such a neutral mode..............next week can go either way. Above the 1145-1153 area suggests we move higher.........below 1106-1110 favors lower for the week. 
Price here right at neutral The blue arrows point to the support areas for GLD.
Money flow indicator looks bearish
In summary, the next move is about to develop. From a short term basis, it is important to realize that price usually moves lower into month end. From a MEDIUM TERM BASIS........ history shows that the WINTER MONTHS is a time when one should be looking to have the lowest exposure to gold stocks for the year.............and the accumulation time should be in the summer time. Any close below the 1070-1095 area and the MEDIUM TERM WILL COME OUT OF BULLISH MODE. BOTTOM LINE: Long term investors and medium term investors should consider the SEASONAL and HISTORICAL aspects of the gold patterns. That means that your lowest exposure to gold should be in this time frame while you heaviest exposure should be in the July/August timeframe. ======================================
January 10th 2010 - Gold back in the saddle for 2010 ? Last weeks update had us looking for a rebound from the lows established at the end of December and the short term outlook was a one to two week rally. Our initial targets were for a bounce to the 1140-1160 area to mid month. The results thus far shows gold not only on its way but in good condition. Last weeks long range week right off our KEY medium term BLUE MOVING AVERAGE where the low in price HIT and held for three weeks is enough for gold to have put in some type of bottom (see black line). But to add a lot of bullishness to it is how the technical indicators have turned up as well. A quick look at RSI, William %R and MACD (see circled areas) show those key technical indicators have either held (MACD) or turned from key levels back up (RSI) (WILLIAMS). When we couple these key indicator with the long range week, it favors the bounce to keep moving up to a minimum of our next resistance areas.
RSI TURNING UP
WILLIAMS % R turning up at the 50 area
MACD holding the zero line
Last weeks high at the 1143 area reached our first area of 1140-1160, but more importantly was that all the pullbacks held key support at the 1115 area. Even the low for last week of 1093 was at our upper support area of 1085-1095. So on both ends gold turn on the chart looked real nice. There is only one question that players are interested in this week. Is the medium term correction over? Overwhelmingly, most analysts are looking for LOWER prices and say that the correction is not over and that is a surprising change from just a few short months ago. One of the biggest areas that the bears see problems for gold is the recent rally of the US dollar. What they might be witnessing is not as much of a US Dollar rally but of a EURO pullback as the debt situation there has put the EURO under a lot of pressure and it has fallen fast and far for a currency in a very short time. The EURO carries a lot of weight on the US Dollar index and the fact that GOLD is STRONGER than the Euro leads us to wonder if gold will really suffer much more in the short term ? The Euro is due for a bounce against the dollar and that could lead to US Dollar weakness this coming week, something that would be good for gold. A look into the past shows that January's can often close on the upper end of its monthly trading range. In fact 2006,2007,2008 and 2009..................ALL CLOSED AT OR NEAR THE HIGHS FOR THE MONTH. That is not to say that every January closes higher, but that its SEASONALLY a strong portion of the gold rally.
The Autumn correction of 2009 that we just witnessed was one where the pullback was very late in the year to come. A most interesting SIDE NOTE is that the EXACT LOW for gold thus far OCCURRED on the last day of AUTUMN/FIRST DAY OF WINTER on December 21st. Now I say that as an interesting side note and nothing else. It's just that any further pullback from here cannot and will not be part of the Autumn Pullback. FROM A TIME PERSPECTIVE the AUTUMN CORRECTION IS OVER. THE WINTER Rally HAS BEGUN. HOW HIGH IT WILL GO, OR IF IT WILL FAIL WE DON'T KNOW FOR SURE JUST YET BUT WE HAVE AN IDEA THAT THE UPPER CHANNEL LINE ABOVE 1200 WILL BE A DIFFICULT AREA TO EXCEED AND THAT WE EXPECT TO RUN INTO SOME RESISTANCE THERE. HOWEVER, THE MOST IMPORTANT ASPECT THAT WE ALL NEED TO KEEP IN MIND IS THE IMPORTANCE OF GOLD HAVING EXCEEDED THE 1000 AREA, AND HOW THIS PLAYS AS A MAJOR BREAKOUT ON THE LONG TERM CHARTS. SHOULD WE EXCEED THE UPPER RED CHANNEL TREND LINE WE COULD GET A MOVE UP THAT IS SIGNIFICANT.
WHAT NEXT ? The zoom in chart above shows what seems to be some pretty important SUPPORT ESTABLISHED AT THE 1115-1120 area in the short term. There is also some resistance at the 1145 area from the highs of December 7th thru the 14th. Both the weekly chart and the daily chart certainly seem to be in a position of strength. The long range bar and technical indicators on the weekly chart as well as the last three daily bars all seem indicative of strength. Another plus was holding that 50 day moving average during the last three days of the week and especially on Friday how gold dropped all the way to the 1119 area and then exploded back to 1140 once the job report was by the boards. We enter the second week of January with all three timeframes in bullish mode..........short, medium and long. The WINTER RALLY IS NOW UNDERWAY officially and if the gold market acts like it usually does, the odds favor that prices don't usually peak until the month of February. The best take we have is that the 1183-1190 and the 1206-1233 area would be tuff nuts to crack in January, but we don't want to set a limit on price just yet. If we exceed last weeks high, ODDS FAVOR A RALLY to the 1160-1183 area in the coming week. We TEND to favor the 1160-1165 area more so than the higher range of 1183 but by weeks end our resistance area could very well allow for price to move that distance. We will stay with our forecast from last week for a mid month peak in January followed by a small pullback and a rally to months end. We said last week we'd be watching for STRENGTH or for weakness in the move up...........and thus far the price pattern is BULLISH on both the DAILY and the weekly chart. With the internal technical condition much improved we have a VERY GOOD chart pattern that is working. AS LONG AS WE HOLD THE 1110-1115 area, the SHORT TERM TREND WILL REMAIN UP. As for the medium term, we also maintain that as long as we hold the 1055-1070 area the trend remains up. Finally the GOLD STOCKS HAVE HELD UP VERY WELL, and as we mentioned on our DAILY REPORTS, SILVER might be telling us with its strength that the uptrend has resumed. Our last chart is the US Dollar. As you can see the dollar has had a significant rally as it portends to the price pattern.......so far bullish for this rally. A pullback to the 50-100 day average is possible in the coming week or two. There are two sides to the US Dollar argument for 2010 --- one is that the DOLLAR RALLY IS DONE, and the other is that the dollar will rally a lot further than most of us think.
On a short term basis we can see that the Dollar has a pullback flag formation and that the chart pattern remains bullish. Flag support us around the 77 area, but the 50 and 100 day average at the 76-76.50 area is really where the first KEY SUPPORT is. If the dollar rally should end here it would be a very ODD chart pattern and we don't think we've seen the top print in the dollar just yet. However as we mentioned earlier, the dollar rally may be more of a weak EURO and the fact that OTHER COUNTRIES are printing just as fast, if not faster, and have just as much, if not more problems that the USA currently. Therefore it is not out of the question for the US dollar to rally a short amount of time and have GOLD REMAIN strong as well. WHAT IT REALLY COMES DOWN TO IS THAT THE LOSS OF CONFIDENCE IN THE USA as well as other global entities has shifted a lot of FOCUS on gold and while the SUPPRESSION and MANIPULATION of gold was well in control in the past, the problem is that the buying is now coming in on a global basis.
BOTTOM LINE We think that last weeks forecast of a 1-2 week move higher into mid month still plays out. We have two targets, the 1160ish or 1180ish area in gold. The 1160 area is not visible on the weekly chart and is more of a daily/hourly resistance area. Thus the 1160-1165 area could provide a high for this week and a pullback from there. From a weekly standpoint the black horizontal line we drew on the first chart at the 1180ish area is a resistance area as is the 1195 area (the last peak prior to the high). So we either peak at the 1160-1168 area this week, or the 1183-1195 area. Odds favor a move to one of those two areas before the next pullback begins. Support for the week is now the 1120 area and the 1129-1133. AS LONG AS WE REMAIN ABOVE 1110-1115 EXPECT THE TREND TO REMAIN HIGHER.
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January 4th 2010 - Happy New Year.........back to upside for gold ? The gold market decided to take last week off and the bounce that we were looking for at weeks end did not arrive until Monday morning. We enter the new year with at a key medium term support area (the 1070-1090) area. We got as low as the 1085 area last week in a market like we said was buying time waiting for this week to develop. Our best read is that a short term rally is underway within a medium term pullback. Let's look at the chart. The weekly chart in gold shows that we have pulled back to our key short term moving average at the 1075 area. This is in line with the initial pullback we've been looking for at the 1070-1090 area. I've circled a key area in 2007 and today in the price pattern. The question is are we at this position in the rally or have we seen a medium term top ?
RSI needs to turn here to remain in lockstep with 2007.
The price pattern has similar characteristics to the 2007 rally but the fact that we are at the upper end of the channel is worrisome. KEY NOW IS WE HOLD THE 1070 area. SHOULD WE DROP BELOW THERE, it will suggest another leg down in gold during the latter half of January. Major support if 1070 is broken would be the 950-1030 area.
Williams %R is troublesome that it has pulled back this far.
MACD is also at a critical area. It has not gone bearish but is on the cusp.
What next ? We think a bounce to the 1140-1160 area would be in play if we exceed the 1125-1133 area for the first week of January. Again what it really comes down to is whether the correction has been completed in gold. It has met the minimum requirements and a bounce is the most likely scenario for this coming week. Last week was a transition week where gold made the turn and this is the week whether we get through the first key area of resistance at the 1125 area. The real question is whether gold has bottomed and the winter rally is under way? In other words, is this just a short term bounce with lower prices later in the month ? Lets look at another chart. This is the other potential for gold that has to be considered. We can see approximately 2 years ago how gold peaked after a run up from the bottom of the solid red channel to the top. This is what has transpired again over the last 13 months. Lets look at another view of gold. The chart below is an alternate view --- one that suggests we might have a medium term high in place and is suggestive that the correction is not yet complete. THIS SCENARIO ONLY COMES INTO PLAY IF WE CLOSE BELOW THE 1070 area IN GOLD. OTHERWISE, the odds favor a rally bounce back up and a potential continuation of the up trend is back in play. THE KEY IS WHAT GOLD IS GOING TO DO when it gets back to the 1140-1160 area. It needs to get back above that red line and establish its momentum uptrend again. The argument for a pullback not being over is the Williams %R gauge. However, this alone is not enough to confirm. The peak at the upper red trend lines also need to be watched carefully.
Watch Williams % R
WATCH MACD here....it needs to support near this area.
What next ? This week should be a rally week for gold that heads towards the 1125-1150 area. UNTIL GOLD BREAKS BELOW THE 1070 area..................the odds favor a rally into mid month. There are two upside scenario's .............. 1) We move to new highs during the winter as the gold bull market pushes on to all time new highs in a very strong market. 2) The rally back up fails at some point on the upside, either 1140-1180 or 1225-1300 and makes a mid winter peak and pulls back into the spring. Support for the week is the 1085-1095 area and the 1070-1075 in gold. Resistance is 1125 and the 1140 - 1140 to 1160 area. A CLOSE ABOVE 1115 and initial SUPPORT FOR THE WEEK becomes the 1105-1110 area. Bottom line: Look for gold to try and rally this week..............the most likely area is the 1125 or 1140 - 1160 area for a peak. We feel the short term is out of bearish mode and a 1-2 week rally should be underway. Based on how the pattern plays out in the way it looks will give us clues if there is strength or weakness. As gold was in a transition week last week, the US DOLLAR is going thru testing its first significant resistance area, and this should be a transition week for the dollar. So this week is the week where we see how much strength gold has and how much weakness the US Dollar brings. Look for a gold rally to the 1125.........and if exceeded to the 1140-1160 area in a short term rally towards mid month. ==============================================
December 27th 2009 - A bounce week for gold ???
Before we begin I wish you all Happy Holidays and hope you all got to or will spend time with the family. We move into the final week, month, year and decade in the first portion of the 21st Century in a position where the information age supplies so much information (and disinformation) that sailing the oceans of the investment world remains a daunting task to ascertain direction. The storm clouds on the horizon remain as far as one can see but the rains and thunder claps have not been evident since last March in the “paper” world. Indeed we continue to see government statistics (when properly spun) that is suggestive of a recovery in the global economy. What are we to make of such a statement? If we ask a recovery from what and the answer is – a recovery from the crash of last year, then yes, I would agree that we have “recovered’ from a crash. The question going into 2010 is can it hold up? While the quest for fundamental answers are paramount to the big trends, the analysis of price charts can serve as a function of confirmation that the market is indeed reacting to the current and future perceived outcomes as witnessed by the incremental increase or decrease of price in the various commodities and financial instruments. So let’s get right to the charts to get a bead on where we are.
First up is the US dollar chart. Fundamentally, there is probably nothing on the planet where anything can be perceived as more bearish and the chart shows the relentless yet controlled downtrend in price. The term controlled downtrend is the key. Just as controlled inflation is basically “monetary policy,” it too is the key. If I understand correctly, the systems of global finance can only move forward if there is inflation and credit expansion. In other words, the only way the system can move forward is if the population continues to EXPAND its debt while at the same time, its citizens accept a loss in purchasing power (inflation). No wonder things are so screwed up. At the center of the crisis is the United States dollar. For the past few months, we’ve watched the dollar closely anticipating the potential for a dollar rally off of the 74 area in the November timeframe. While the fireworks did not occur until December the rally has nonetheless pulled above its short BLUE moving average adding weight that the current dollar move is more than likely a medium term move as opposed to a short term move. And that is really the question and analysis required. Has this been a short term blip or is it indicative of a longer term trend change? Now as ridiculous as that sounds we must keep in mind that the dollar in most conventional means of measurement is at a sentiment extreme when it comes to the bearishness surrounding the currency. I am not suggesting that a LONG TERM TREND change to the upside is occurring in the US Dollar, but that a medium term move in the dollar is most likely unfolding. It is difficult to encompass a good description of what I feel is the short, medium and long term timeframes because I tend to view in terms of price and time. Let’s look at the dollar perspective: We already know the fundamentals all suggest that the dollar is in a long term bear market. During last two years the dollar shows that even in its weakened form we can expect an occasional 9 to 13 week rally from the US dollar. We believe that is what is currently underway in the markets. Here’s what I am looking at in terms of understanding the potential length and potential timeframes. First, we’ve already convincingly moved above our fastest moving average, the blue line for the first time really in a year. In fact, this rally may not have been impressive, but we did move to 4 month highs in a short amount of time. Price and time RESISTANCE IS THE 80-82 area on the chart and SUPPORT IS THE 76.27 area. As long as the dollar is above the 75.60 – 76.27 area THE TREND AND THIS RALLY WILL REMAIN INTACT. For now these are the only 2 prices we need to keep in mind and that the trend right now is up. A peak at this point in time is favored in either January or March. There are some who are declaring that the US Dollar is going to be the surprise investment of 2010. Others scoff at such a prediction. Each has their argument to be made and there is no doubt that it is “EASY” being bearish the dollar. When one considers where the money is made in the markets, ask yourself this question. Does the market usually reward the easy trade or the difficult trade? Is being short the dollar an easy trade or a difficult trade? There is a reason many traders are drawn to the currency market and that is because currencies are known to trend the longest. This current short term rebound on the dollar needs to be kept on the radar using the support and resistance areas we stated earlier as guidance to monitoring the uptrend. Somewhere along the line a 6 to 13 week rally in the dollar would be par for the year. Perspective The US Dollar index in 1980 was trading near 85, only about 7 percent higher than the dollar is now. This is good perspective to keep in mind. The other side of the coin is that the bearish fundamentals seem to be overwhelming for this currency and we must keep in mind that the only real dollar rally over the past two years was during the credit crisis of 2008. There seems to be a trend towards monetary debasement and debt destruction that on the surface would not tend to bode well in the long term. Bottom line Pullbacks aside, until we start closing back below 75.60 we favor the dollar rally to continue for the time being. Due to the conditioning of the market, we too feel that a bullish stance in the US Dollar is not one that is justified long term. HOWEVER the chart does have rally potential. FOR NOW, we will treat the chart of the US Dollar as bullish above 75.60 and will keep it on the radar. A pullback to support for the dollar should be expected soon as goes the short term. This might be in line with the bounce in gold that is underway. While the odds favor a pullback in the dollar and a bounce in gold, GOLD WILL NEED TO HURDLE The 1125 -1133 area to even neutralize its current short term downtrend and more importantly move above the1150 area to regain its short term trend to bullish. Another interesting market recently has been what is going on in the bond market since the dollar rally. Interest rates
Here’s an interesting chart called TBT. It’s an inverse ETF on the bond market. As the stock rises, so do interest rates. There is now growing evidence that the long end of the market could potentially be embarking on an interest rate rise. We can see that price just might have bottomed on the lower channel line, and from that bottom the price above ALL OF THE MOVING AVERAGES ON THE CHART is a bullish development of POTENTIAL MEDIUM TERM proportions. This is suggestive that interest rate increases on the long end might be in the early stages of rally towards the 60-65 area in TBT. This would be suggesting a move to the 5% area in interest rates. The June timeframe is a notorious area for providing peaks in rates and the potential for a rise in the first quarter of 2010 is the odds favorite as long as price remains above the moving averages and the lower channel line. For those who believe that interest rates are going to rise from here on, this is a nice easy way to be short the bond market. NOTE: As a disclosure to readers, I OWN SHARES. ANY MOVE BELOW THE 42 AREA WOULD HAVE ME RE-EVALUATE DIRECTION of INTEREST RATES. GOLD
RSI is pulling back and would add a bearish tilt should we move below the 45-50 area. The UPPER LONG TERM CHANNEL LINE hit by price and the 150 dollar pullback is probably the best case I can make that this was a MEDIUM TERM LEVEL that gold reached during December. The pullback right to the blue moving average suggests a bounce towards 1110-1125 and potentially to the 1144-1150 area. Below this weeks 1072 low support on a weekly basis is somewhere in the 1020-1050 area where the breakout of price was achieved in this current bull leg.
MACD has pulled back near the zero area, and any further drop from here would also suggest that the correction might not yet be over. Williams %R is also suggestive that the pullback is of medium term degree. In sum: From a price PERSPECTIVE, gold has dropped enough to meet the requirements of a complete a medium term correction. From a time perspective, the potential to correct one more time after this bounce has historical precedence when viewing previous corrections over the past few years. Lets discuss the short term. The pullback in gold from a seasonal standpoint that was correctly identified from December 4th is now entering it’s fourth week. A look at the chart above shows a DIRECT HIT ON OUR BLUE MOVING average and a $40 dollar bounce in gold has transpired since. This leaves us at an interesting juncture short term. The ideal short term scenario would be for this bounce to continue to year end (weeks end) and then another pullback to the mid January time frame before a more pronounced attempt toward the 1200 area in early winter. What is more important at this time is the question that we asked in the first two markets, and that is whether we are witnessing a medium term correction in the gold market as in the dollar and bond market? In its most bullish scenario, the gold market would bottom here at the blue moving average and would simply pick up right where it left off at the beginning of December. In its most bearish case, if this were a medium term correction, the potential for gold to test the 200 day average would certainly be on the radar screen. Currently that price is below the 1000 area, but gold could also move sideways for a period of time until the 200 day average catches up. This medium term scenario would open up the potential for the current leg up in gold to be complete and could potentially enter a sideways to choppy market for the first part of 2010. It is too early to confirm such projections but it is a scenario that has potential and needs to be kept in the forefront. From a seasonal standpoint, there is usually a winter rally leg in gold where the month of February ideally produces a high that leads to a spring correction. On average this is what transpires but there are seasons where rallies end late and sometimes the end early. With a 141 dollar gain in November price, a 150 dollar pullback from December’s high, the potential for whipsaws or bad price entries are ever present. Going into this final week of December we tend to favor that the correction in gold is not complete just yet from a medium term perspective, but a short term rally back towards 1120 or 1150 (and potential for even more) is certainly a valid potential. When we look at last week, we did reach an IMPORTANT SUPPORT AREA IN GOLD when we touched the mid 1070’s last week but we cannot rule that as “The” low for the move on a medium term basis yet. It certainly is an area where a bounce has been launched from as should be expected but now we need to watch gold's behavior. We’ve discussed price and time and one of the potentials for gold is to move in a sideways or flag formation in the coming month and then making its move toward month end. January curiously has a tendency to either close on its highs or its lows for the month so a consolidation into mid month and then a trend move to month's end is a high potential scenario. The Jan high/low close has been witnessed a lot over the past decade. Thus there is a potential for gold to have made a PRICE low but could still vacillate in the 1075-1200 area over the next few weeks. We are open to a lot of scenarios right now and we'll keep whittling them down as we watch the bounce. One of the considerations (at least in my work) is what (if anything) could bring the price of gold down during the first part of the 2010 year? Over the course of 2009 I’ve maintained that the only potential I saw is if we were to get another credit contraction event such as we saw in 2008. During that crash gold did in fact drop from 1000 to just under 700. However, all assets except the dollar and bonds collapsed in panic fashion and gold has been the only asset to recover its gains and move on to new highs since then. So I tend to view any pullbacks as an event that is not a long term view, but could in a washout effect gold on the short to medium term. This brings me to one of the questions I was asked
last week by a reader which was if I could elaborate as to why gold has
to go down during a credit contraction event? In truth, I would say
that it doesn’t The subject is a complex one. It is one that I’ve struggled to get a handle on and I’m not sure I can do the argument justice in trying to explain the machinations that suggest gold has to go down during a contraction. The argument I've heard is that during a debt liquidation there is a contraction of the money supply as bank loans are paid off or defaulted on and this leads to distressed selling of assets, which in turn leads to lower prices across the board bringing on new bankruptcies as a fall in output, trade, employment eventually drains the system and leads to a hoarding of money. Please don't shoot the messenger.........I am not advocating this is the scenario that will develop. In fact a "hording" of US money seems so far fetched in the current environment that it almost becomes a difficult subject to even discuss openly. And that is the interesting component in all of this. MONEY. The potential for gold to explode stems from the fact that “money” itself (or what the government calls money) has become suspect. So this is no ordinary liquidation. It is one where the considerations of what real money is comes into play and that is a scenario we have not had to deal with ON THIS LEVEL since the late 70's. One thing is for certain. The gold market is a very small market about the size of Wal-Mart. If there’s ever a panic that way, the moves could be incredible. Until gold acts POSITIVE towards any credit default situations, we will assume that any new default media stories or events will not be favorable to gold in the short term. Should gold begin to react in an positive way under such circumstances or news, it would serve as a major signal that a loss of confidence in the global system is approaching a waterfall event and will strengthen the resumption of the gold bull market in short order. Over the past few years we've grown accustomed to the public and corporate insolvency that has been witnessed. The coming year is suggesting that debt issues are moving to a national level. This latest scene of debt crisis is beginning to take center stage. Public and corporate debt is one thing, but if a shift is indeed moving towards nations in default as part of headline news, the issues in the global financial system could escalate rather quickly and so could a loss of confidence. We must remember, all of the problems that have been building have yet to be reconciled. First debt nation Iceland is still a country that has an $80 billion dollar problem and while that doesn’t sound like much the issue is that in percentage terms, it is many times GDP. It is a mess that has implications with other countries whose investors put money in Icelandic banks that had branches in neighboring countries. The IMF has already been forced to push back some dates of payments coming due. Right behind Iceland are the others such as Greece, Spain, and other Euro countries along with the likes of the UK and USA that have serious issues that are allowed to remain in limbo best described as “coping mechanisms” where no solutions have come to the forefront and time grows thin. In the United States, California is leading the way towards insolvency but there are probably a handful of other states not far behind. Indeed there is talk that California is already in discussions with the administration and the feds as to how a state default might be handled as indications are that the situation continues to deteriorate. It is not whether the current administration bails out California but the reaction of the credit markets at such an event. Meanwhile China is basically on record saying that like a bad junkie in an intervention program, the USA is being shut off on debt and unless it agrees to some type of rehab program, it will face eviction from the family unit. The debt default situation is probably the most important thing to keep a watch on as a potential “event” that could trigger a movement. One of the things I find interesting is the fact that the stock market seems to have decoupled from the inverse dollar relationship on this current dollar rally while gold it seems was still affected. My point is that if the stock market can decouple so can the gold market and we cannot rely on it to perform in the same manner in 2010 as it did in 2009. Indeed, for a time there in November, gold too was traveling to its own drummer rallying day after day regardless of what other instruments were doing at the time. Here is another consideration. While there is the predictions of a mass inflation coming down the pike the thing that strikes me is why then aren’t people taking on all kinds of debt and looking to repay it with cheaper dollars? Certainly the pro’s are moving in the carry trades, but if the Yen and US dollar fluctuations are any indication of late, that market too is not an easy ride and is flush with hazards. The bottom line is that 2010 has the potential to provide more debt shocks to the system. It will be very important to watch the gold market and how it might react. Thus far the US dollar is going thru its first rally in almost a year and gold is correcting at a time when Debt has been reintroduced in media airwaves and the potential to default has been brought to the forefront again. Due to the seasonal aspects of gold and the dollar market, one can make the case that the dollar rise and gold drop in December was coincidental. While that maybe the case, Until we get further confirmation from gold, we will remain skeptical that defaults are beneficial to the gold market. Should gold begin to react positively in price during such an event, we will be quick to embrace that scenario and recognize the shift and the assumption will become that the “panic” to gold is beginning to spread. The coming week in gold is one where we need to keep in mind that many participants are on holiday and makes the analysis a bit more difficult to have as much confidence as we normally would. We still feel that we are in a medium term correction of 2 to 6 weeks in duration. We think that the 1070 area was an important price over the short term and a good bounce develops from it, but we are not ready to proclaim it as “the” low of this pullback. We enter the fourth week now since the early December high and we will be watching the action for potential clues to direction. While we are in favor of a bounce to be in play early in the week, gold still has a lot of areas of resistance that it needs to overcome to re-establish the short term trend to up. For now, this is gold’s best rebound potential so far, but from a medium term perspective, it is too early to call this anything but a bounce off of important support. Lets see how the week plays out. First resistance for the week is the 1115-1125 area and then the 1144-1151 area. Odds favor a peak at one of these two areas this week. Support is the low of last week (plus or minus 5 bucks) near the 1075 area, which is a WEEKLY/MONTHLY price area that is important. Initial pullback supports are also likely to form in the 1086-1096 area and at 1100ish. Bottom line: Odds favor an upside short term bounce bias. That bounce needs to hurdle the 1115-1125 area to gain traction if the bounce is to potentially turn into a rally for a rally to weeks end. THUS far, the bounce seems to have a bullish bias to the pattern. Pullbacks to the 1085-1095 area might provide an short term setup this week, especially if the PULLBACKS BECOME CHOPPY AND THE UPSIDE BECOMES IMPULSIVE. That is what we want to watch for early in the week. Have a great week............and a happy New Year. =========================================================
December 14th 2009 - A tale of two channels
Last weeks weekly update was aptly titled (DUBAI -----OR -------------DO SELL ??????) From the get go gold dropped for the entire week eventually bottoming at the 1109 area. Our 1115-1130 area was only penetrated for a few hours late last Friday. As quickly as it dropped below that area, by the Friday close ------it was at 1115.10 on the spot market, interestingly, right at our weekly support area. So while we did penetrate that area, we did not close below it. Could this just have been a one week correction ? If the price was not so deep, I would say no...........we have more to go. On the other hand, a 120 dollar pullback is nothing to sneeze at. But let's take a look at the weekly chart and see if we can get any other perspective.
RSI confirming correction
Is this the same pullback we saw in 2007 and we are only half way thru the rally ? the 1026-1072 area will be important
MAJOR SUPPORT IS THE 900-990 area.
WILLIAMS % R IS FLASHING CORRECTION more than sideways action.
MACD still acting like 2007 pullback
THIS MAJOR VOLUME SPIKE IS BEARISH
The first thing we want to ask is did we see a Medium term top at 1200 ? If we are following the BULL MARKET CHANNEL (RED) the answer is yes. The upper red channel line is the maximum upside channel that exists in the 21st Century bull market. If we are to move higher from here, a NEW MOMENTUM CHANNEL (MAJOR BREAKOUT) must be constructed. The black dashed line is a POTENTIAL NEW CHANNEL CONSTRUCT. Because of its slope upwards it grows at the rate of $300 dollars per year. if the bull is to continue from here, we need a new channel to climb. THE UPPER RED CHANNEL LINE IS NINE YEARS OLD. IT represents the most significant resistance in the entire gold market. IF we were to break above it, the new range would be the 1350-1600 dollar area this winter. IF WE ARE TO HAVE ANOTHER MAJOR BREAKOUT then the current red bull market channel line must be taken out BY PRICE. THIS is our major pivot line for the year. The next leg of the bull market cannot extend without going THRU this line. RESISTANCE THEN FOR THE BULL MARKET IS NOW the 1220-1275 area. Probes above that area would confirm that the next leg is underway. We singled out this area a few weeks ago as the most important position on the entire chart and it remains so. WHAT ABOUT THE DOWNSIDE ? During this entire run Goldtrends has maintained that the only thing that would seem to be able to derail the gold market would be another leg of the credit contraction we saw in 2008. The question begs then was the Dubai announcement the reason gold fell so much? And what of the stock market not dumping on the same news? If another contraction were to unfold the potential for a lower gold price (even a short amount of time) can't be discounted. Lets discuss the market in it's timeframes. Short term - Key dates seem to be the 16th (plus or minus a day) the 22nd -23rd (Plus or minus a day) and/or the end month. The 50 day moving average at the 1105 area is an important area. Thus far we have reached the 1109 area. Was that close enough? In bull markets it is. Odds favor that a short term bounce back up is not far away. Medium Term - We believe that gold is in a 2-6 week correction phase. That is our best take at this time. This pullback is being labeled as the autumn correction. Once this correction is complete, odds favor one more push up this winter. The volume spike makes us suspect that there is longer to go in this correction. It will be key to watch the bounce we get to see if we discern any clues. Any rally back up that fails to make a new high and turns back down in a corrective price pattern will greatly increase the odds that we won't bottom until January. Long term - There is a 2 to 5 month pullback due over the next 12 months. Our outlook from September was a high in Feb/March at the 1200 dollar area. Now that we have reached the 1200 dollar area and we have our price target, the question becomes is there still a winter rally ahead of us ???? We're not sure at this time yet. What is important is that the PRICE PROJECTION AND UPPER LINE TOUCH ON THE CHANNEL HAS BEEN MET. In my work, that opens up the potential that a much deeper correction could develop. THAT IS WHY ITS GOING TO BE IMPORTANT TO SEE WHAT THE BOUNCE BACK UP LOOKS LIKE AFTER THIS CORRECTION IS COMPLETE ON THE SHORT TERM. If we are to have a winter rally to new highs, we will need to take out the red channel line as described earlier. For now, we going to take it one step at a time and be patient and give the market a chance to try and recover. If the pattern looks bullish, then we will watch the upper channel line as our 2010 PIVOT POINT as to the potential of higher prices. If the bounce looks bearish t might be time to tighten stops on remaining positions and be prepared to just hold the CORE positions. BOTTOM LINE: The best read of the chart is that we are in a medium term correction of 2-6 weeks. The potential for it to extend longer can't be discounted yet. We will have to watch reaction rallies back up and try to hone in on whether the trend is resuming or if its an upward bounce with more downside later. SUPPORT: 1105, 1070, 1030, 980-1000 RESISTANCE: 1190-1206 1225-1250. Moves above there and the next leg up into winter should be under way. For the upcoming week, we think it will go down in the books as a week were gold tried to bounce back up. I suspect the upper end this week is the 1165-1175 area. On the downside look to the 1070-1105 area as initial support with the other prices above as monthly and quarterly support areas. Any price failure at the 1145-1155 area will leave downside testing open as an option.
May you all prosper this week.
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November 30th 2009 -DUBAI -------- OR ---------DO SELL ?????? In last weeks update we discussed the incredible rally that gold has witnessed over the past 4 weeks where gold is now rising on average 30 dollars every week. Lets review our technical condition as laid out last week. In that update, we looked at both the bull and bear side of the market. Even in our bull side we stated that by ALL MEASURES AND STANDARDS that gold was way overbought but that price had yet to succumb to any pressure other than BUYING AND SHORT COVERING. And so it is as India announced its intentions to seek more purchases of gold in the coming weeks. On the other end of the "panic" button, Iran has just announced plans for building another 10 uranium enrichment plants in defiance on the UN community. As far as the outlook we had last week, we suggested that gold was heading higher towards the 1200-1220 area. For the week, we were up $27 dollars and got to within 4 dollars (1196) of our sited resistance area before this pullback. And what about support? We listed weekly support at the 1120-1130 area. The low for Friday on the contract that I follow and report on the daily update had a low of 1130.60, just sixty cents shy of the low. The question that begets the gold community is the drop that ensued on Friday the beginning of a correction that is long over due or was it a one day wonder in which we are in fact still in melt up mode and that the entire short term correction of $55 dollars was achieved in just one day? In other words, did we just get a short term correction and it is already over? One of Goldtrends readers, Norman asked a question last week when the intraday email on Friday alerted readers that the short term trend had turned bearish........asking "How long is the short term in days?" You have heard possibly that many analysts look at the short term usually in a 1-4 week timeframe. And that is a reasonable assessment and target with which to go with. However, I tend to look at it also in terms of PRICE........especially when we are in a runaway situation as we have been over the course of the last month. If we think about it, when we define the short term trend as a 1-4 week timeframe, we are in essence saying that the length of the correction can vary. In the case of last Friday, a $55 dollar pullback in one day is an excellent case in point. If we remain in a runaway situation to the upside, then gold may have just performed a full blown correction in the course of 24-48 hours. In the past we've discussed the three timeframes of gold...., short, medium and long term. Prices also have three main timeframes, daily, weekly, monthly. It would also stand to reason then that there are three main price supports, daily, weekly, and monthly. Of course, in trading, as well as charting, there are many shorter time frames like the hourly, the 30 min, 15 min, 10 min, 5 min, 1 min and yes, even a tick chart. This last list (with the exception of the 60 min chart) is used within the day trader community and each is based on the timeframes each trader employs. They do so because the market is a fractal and the price patterns that appear on the daily, weekly and monthly charts also appear on the short time frames. If one were to remove the price from a chart, one would not be able to discern what time frame they are looking at. This is not to say that the short term timeframes are only reviewed by day traders. Swing traders (1-4 week trend traders) at times will look at the very short term to get a glimpse if the current trend remains strong at the "now" moment. It is also used by Elliot Wave technicians who might get a better view of their current wave count and look for verification of the current counts they are tracking on the daily or weekly charts. These timeframes are why we will use more than one set of support and resistance areas in our reports. For example, the pullbacks in gold over the past few weeks have only been occurring at the hourly levels of support. In other words, the pullbacks are shallow. The daily and weekly numbers have not really been tested lately. The 1120-1130 area we listed last week was a weekly support number. The 1137-1155 area was a daily support. We list these various areas because during the course of trading each of these timeframes get tested. Since we don't know exactly when, we usually list the three. To highlight exactly what we are getting at consider the 60 minute chart of gold and the weekly chart. Here's the 60 minute chart of December gold. Look at that plunge. (you should see it on a 15 min chart !!) Notice how close price came to the GREEN moving average and the lower dashed blue channel line. And speaking of that lower dashed blue line, see how that channel line has provided support? Look to the middle to far left and you can see how ALL THE NOVEMBER LOWS supported on that price line. This is the same line we used throughout our daily updates in November as support and this example is what I mean by a "weekly" test of price support. That dashed blue line is where we got the 1120-1130 support area we used in last weeks update. How about daily price support. In this case it would be the area of the upper dashed blue line and the fast yellow moving average and the lower aqua line of the momentum channel.
We can even see how once price bounced back up off its low that it zigzagged right in the area of the dashed blue, tiny red, aqua channel line and fast yellow moving average before moving higher. And look now how price is bouncing up and down between our tiny blue and purple moving averages as it decides which way it gets ready to move next. This gives me confidence that even in extreme times like these that the signposts on our charts are still very valid points of importance as regards to the price of gold. We will begin to phase out of the December gold contract as the switch over to February gold will be displayed from this point forward, although we may use it for intraday support during this week. In closing the December contract traded in an almost $500 dollar range over the past 12 months from the 700 to 1200 area. BUT THE MOST IMPORTANT THING IS TO WATCH AND SEE WHAT DEVELOPS THIS COMING WEEK IN THE DELIVERY DEMANDS THAT INVESTORS WILL MAKE TO DECEMBER GOLD FUTURES (THE BIGGEST CONTRACT OF THE YEAR). There are many analysts who are under the impression that the NEW YORK COMEX is practically BUST and that they do not have the gold or the silver available for demand should contract buyers decide to take delivery. This is not anything new as these analysts have been warning for months that this potential of COMEX default is growing. The reason that I have begun to bring this to light is because PRICE IS NOW REACTING IN A FASHION that might confirm that the time is coming. Any news that HITS IN DELIVERY ISSUES WOULD BE A MAJOR FACTOR AND COULD IGNITE PRICES HIGHER. That is why it is important to ascertain if the pullback we HAD LAST FRIDAY was enough to fulfill a short term cycle low with its 55 intraday dollar drop. IF IN FACT A DELIVERY PROBLEM EXISTS we have the potential to move higher. So this must be watched. In summary, the hourly chart and price move that was witnessed thus far HAS ONLY AFFECTED traders and the short term trend. Even then, we can make a case for a swing trader not being stopped out. It all depends on your timeframe and your risk tolerance. From a timeframe perspective, I was stopped out of some short term leveraged futures positions on Friday. However, none of my medium term core holdings were affected. That's because I don't use a 60 minute chart to determine those holdings. I try to look at those on a weekly and even monthly standpoint. It is important that you know what timeframe each of your investments fall into. This will keep you from panic out of positions you have for the longer term that shouldn't be sold on a one day dip vs. leveraged futures positions for example which always need a stop. WHAT NEXT ? For the coming week, resistance will be the 1180-1200 area again. This is the same zone we used a few weeks back. The shift to the FEBRUARY CONTRACT has an interesting twist in that we've redrawn the larger channel line and it offers a more zoomed out view. This is a normal occurrence I've noticed whenever a monthly price chart change is made. Lets look at February Gold for the first time. This is a zoom out 60 minute view below. Cycles of Time Our starting point is near the July lows so it encompasses for the most part the entire gold rally of 2009....close to a $300 dollar move in 90 days. Cycle analysts know that 89 days is an important time point and from that perspective, this rally is played out. This doesn't mean that the next 89 days can't be up, but we should be on guard for this to be a potential top from where a correction will begin before the winter rally sets in. Cyclically it would also be in gold's best interest to correct here. Better to see a pullback into Christmas and/or New Years from where gold can begin its next leg than for us to blow off in December and find ourselves correcting all the way into spring. Gold (any market) best performs and trends continue longer when cyclical pullbacks occur. In Gold's case, an Autumn correction now would be a nice set up for a winter rally. Should we not pullback, a runaway market blow off would occur where prices escalate much higher from here in a major spike in December or January. I speculate that gold would be better off working off a bit of excess by correcting to the bottom black channel line and then rallying into the February/March timeframe. From all standpoints, short, medium, and long term, the cycles call for a correction here. Granted the longer term cycle correction has a standard deviation that could extend into next spring before it takes hold, but the point is that from even a medium term standpoint, odds favor a correction is due to unfold. Not that it has to if we are in a runaway market, but the odds favor it.
For those who are cycle aficionados, Alistair Gilbert at www.alistairgilbert.com covers the Delta cycle timeframes as well as Elliot Wave and even the Armstrong 16 week gold cycles. I've provided his link if there is interest and I believe there is a report example available at his website. In summary, from a cyclical standpoint, a correction is still in the cards at some point. Could the high we witnessed at 1196 be "the" high and a pullback is underway? Yes, it certainly could. The fact that we traveled 55 dollars and have bounced back so hard also keeps the rally in play and makes it very difficult to pin which way the market moves over the next week. Here's what the charts suggest to look for. First THE UPPER CHANNEL LINE is FIRST AND MOST IMPORTANT RESISTANCE. That area is the 1180-1200 dollar area in February gold. The premium to spot is only $1.50 so is close enough to use as a spot range as well. Just keep it mind. There is also a short term 2 week cycle PEAK due on December 2nd, plus or minus a few days that is suggestive of a pullback or sideways market. This would assume that the December Futures delivery will go by the boards without any disturbance. If this is the case it still doesn't change the outlook into 2010 where the supply of mined gold continues to contract at a time where demand is increasing in an almost panic mode recently, but it does suggest that at a minimum, a short term correction is the odds favored direction. SHOULD PRICE EXCEED THE UPPER CHANNEL LINE on the 60 minute chart, then we expect GOLD to continue its rally to the UPPER CHANNEL line on the daily or weekly charts as gold moves into a MEDIUM TERM HIGH and CORRECTS FROM THAT AREA. Lets move over there and see what it looks like. First, lets look at the daily chart.
This view encompasses the entire bull market run from the depths of 2008 almost a year to the point. Interestingly, the DUBAI incident is a similar situation in debt development that initiated the 2008 crash. This is important to watch. First will DUBAI come forward and guarantee the debt like the USA did in 2008? The longer they hesitate and leave any doubt, the more the potential for potential nervousness in the markets. WHAT WE REALLY NEED TO AVOID IS ANOTHER ANNOUNCEMENT. Officials are saying this is a very contained circumstance and we need not worry about contagion. Of course, that's what they said the last time. Should there be another announcement of bearish implications it will be enough to shake up the markets. THIS IS WHERE WE NEED TO SEE GOLD DECOUPLE if it is to be the "safe haven".......or as I prefer to call it, the "panic button" go to asset. On the daily chart, we can see that we had an exact short term touch of our fastest moving average, and we can see that the low on the spot price of gold was at the 1141.25 area. Recall that one of our key areas of importance last week was the 1137-1144 area. So while the 60 minute chart had a lot of one day damage, we can see by the daily chart, that this was not a huge move in proportion to the chart pattern. In fact, if we look at the weekly support we published in last weekend's update, the 1100-1120 area is intact still and no moving averages have been violated. In fact, we can make a case that the potential medium term HIGH that is the odds expected would be the UPPER BLACK CHANNEL line at the 1250 ish area. Because we are at extremes we are not as confident which EXACT price the correction begins from, be it 1188 at the 60 minute channel, or 1200 or 1250 at the daily or weekly channel, but that the odds favor a correction to begin to take some of this excess out. One of the factors that is also of high importance is the Elliot Wave Theorists "B" wave potential. In this scenario, some theorists still maintain that gold could correct one more time in a deflationary correction to the 650 dollar area. (Even Martin Armstrong lists long term support on gold at $513). In any event, we discussed the information that a "B" wave can only be 1.3838 times the length of its corresponding "A" wave structure. Without delving further into it, for us it means that if gold were to exceed the 1200 area, for most analysts, would eliminate that count as a potential and would mean that a major bull market is under way. On the daily chart, our technical indicators RSI and % R are coming out of EXTREME OVERBOUGHT conditions slightly and MACD histogram at the bottom has begun to rollover. So here to we watch to see if this is still a one day affair. Should we move above last weeks high or say 1205ish, the odds would suggest we are going to touch the top of the black channel line near 1220 - 1250 first and then see the correction. On the downside portion, SHOULD WE MOVE BELOW THE 1120-1137 area (a spot we've isolated on the daily updates as very important also, the odds will suggest that we are in the AUTUMN correction already and a sideways to lower price range will be in play during the month of December. Once complete a winter rally should ensue. The price ranges for turn points grow bigger, but it is a function of the higher go the more wide the swings are in price, but not necessarily %'s, although they increase as well as the velocities and momentum of price has increased also. In the coming week there are two forces that we think will be in play. Supply of Gold and Debt Default potential in the markets. During 2008 gold was a victim and was taken to the shed along with other investments. But since that event, gold has shown that it was the first out of the shed, and took the lead and is the "GO TO" investment since that time. It will be most important to watch gold. Should it decouple and RALLY, it will CONFIRM that gold is the new "panic" asset.........at least for the time being. One of the factors in great benefit to gold is the fact that behind the scenes all NATIONS are in DEVALUE MODE of their currencies. This is in effect how we fight TRADE WARS these days. Nations are so desperate to SELL PRODUCT that each is devaluing in order to remain competitive with the USA currency. That is why we are seeing a REAL BULL MARKET AS GOLD IS NOW MOVING FORWARD ON ALMOST ALL CURRENCY FRONTS. BOTTOM LINE: A move below 1120-1137 will suggest this pullback has further to go before we begin the next up move. Initial support would be the 1080-1100 area (Ideally 1095-1099). At this point in time the potential for a sideways move similar to 2007 is the odds favorite. Should we move above the 60 minute channel line then the potential to extend this rally to 1220-1250 before the pullback begins will be favored. For short term traders and short term trend followers HERE'S THIS WEEKS PIVOT: ABOVE UPPER BLACK CHANNEL LINE 60 MIN FEB GOLD CHART (circa 1188 -1198) = odds favor higher BELOW THE upper BLACK CHANNEL LINE 60 MIN FEB GOLD CHART = odds favor lower. From an "odds" perspective a sideways to lower consolidation week is the usual outcome when we have such a wide price swing. Keeping in mind cycles, price resistance areas, this would be the most likely outcome. However, the state of affairs is really beginning to unravel on the world scene. This is due to the fact that NOTHING HAS BEEN FIXED OF WHICH WAS BROKEN ...........that being, THE GLOBAL FINANCIAL DEBT AND CURRENCY CRISIS SITUATION. Never mind being fixed, the USA will need to borrow and additional TWO TRILLION DOLLARS IN FY 2010............AND THAT'S IF EVERYTHING GOES RIGHT. What's an Trader to do ? If one is knocked off a trend in a one day event, and price rebounds over important resistance points (like channel lines or the highs of the previous week) a trader should continue to follow the trend that was in place and act accordingly. However, with the short term trend having turned bearish on the daily report button, we think that the long side should only be probed if we were to move above the main channel line, or should we bounce off a good support area at lower price levels. What's an investor to do ? If one has been riding the trend, he/she should continue to do so in a market like this because as long as price is rising, the one to try and avoid is to get knocked off and watch the market continue moving up without you on the ride. However, he/she need to be aware that we are in range of medium term points that favor a pullback or correction. Because of the explosive potential of gold and the potential continued drop in the US dollar, one should consider holding all core positions if your an investor. Especially if you've been on the ride a long time. That is not to say you don't cull your holdings at the proper times, but that you at this point consider maintaining your core positions. For the coming week, WATCH THE DECEMBER DELIVERY news, and the continuing currency crisis developing. The wild card is the Dubai situation. Should a second DEBT situation develop back to back, ODDS WILL INCREASE significantly that another debt "panic" would ensue. This is what we think would be the lighting of the fuse if you will. Barring this type of environment the path of least resistance to gold is STILL UP until we see price begin to show more than one day weakness on the MEDIUM TERM. Finally, here's our chart of the US Dollar from our last report. On the left, last weeks...on the right this weeks. We gave support then and a few weeks ago at the 74.00 - 74.25. Last weeks low was 74.23 before the bounce back to 75. This continues to be a CRITICAL AREA for the USD.
Notice here we must hold this 74 area and how price blew a kiss to one of the black line supports. All other technical indicators are in weak technical mode. Look how price is scraping off the top red downtrend line, trying desperately to break above it but unable to do so thus far. Things are coming to a head. Either we move above downtrend line, or break below black channel lines. A break below 73.70-74.00 and the door will be open to break below 70 towards the mid 60's. A move above the channel line would indicate a short term rally towards 76.50.
Bottom line: This week: Odds favor a sideways to lower week.......key resistance is the 1185 to 1207 area. Moves above the upper trend line and then 1196 would put the pullback in question. I'm looking for a pullback -- should December delivery become a problem in futures, obviously all bets are off. This Month: Odds favor a correction to begin that should last a month or so and work off some of this extreme condition. I am not certain whether the PEAK is at the top of the 60 minute channel, the daily channel or the weekly. The peak range could be 1188 to 1220 ish. I am not good enough to try and call it any closer in this type of extreme market. Price confirm: Short term - due to the severe spike obviously breaking below last Friday's lows means that the short term move would already be well under way. Though not as reliable, a move below 1155 would be the next area that would suggest its already under way in the short term. A BREAK OF 1120 would suggest that a larger correction of 4-6 weeks would be under way. Look to the daily updates to provide more guidance as to when and if it unfolds. While I favor a pullback/correction, I BELIEVE WE ARE IN A LONG TERM BULL MARKET AND HIGHER PRICES ARE COMING DURING THE WINTER OF 2010 once we work off the overbought condition. May you all prosper this week. William ------------------------------------------------------------------------ November 22nd 2009 - On the crux of a major melt up? Try as the bears would to bring gold down last week, each success was short lived. Twice they tried, at the beginning and at the end of the week. Each probe to 1130 was met with buying and by time the closing prices were established, the 1144-1155 area we've been using as resistance all week provided gold with its close right in the middle of the range at 1150. On the bullish side of the story, its hard to argue when China, Russia, India and world central banks are buying, although I hear the central bankers are not the best market timers. Huge and successful hedge funds are in deep also. Ever since the initial surge in September, gold has moved sharply higher and when cyclical drops were expected, gold provided only shallow and sideway pullbacks. This was the same thing we saw last week. We basically spent the week in a semi-corrective mode, but gold is so strong right now that it still managed to gain 25 dollars. It is an incredible display that has brought the metals to their most overbought condition since the peaks of 1980. By all measures and standards except one, gold is way overbought. And what is that one standard? A melt up.........a panic rush. While they are rare what makes the situation in gold so explosive is how small its universe really is. There is more money in Wal-Mart stock than the entire gold market. That is how small it is and so the potential for a spike up explosion should there be a panic could be quite the spectacle. As we've been reporting week after week just brings more bullish news. There are many downplaying the Tungsten in gold bars story, but how coincidental is it that documentation exists that Tungsten was shipped to the Treasury according to an article I recall by Rob Kirby recently. And where would that gold most likely be? In my opinion, if the story is true, I'd be willing to bet it is the gold that is backing up the ETF called GLD. Of course, that is extreme speculation on my part and I have no evidence whatsoever that such is the case. But it sure would be a good place for it. Based on cycles we were looking for a pullback last week, and while we pulled back mid week, Fridays and Mondays have been rally days of late, and last Friday was no exception. We suspect Monday will be the same. We are deep into the medium term breakout and the simple fact remains that 19 months of building up to this point has produced results that are typical. This medium term breakout is just not pulling back and continues to mirror the 2007 rally. Ever since September we have been watching the action and technical indicators as template with which to view this current leg. We've been publishing this chart, with RSI, MACD and Williams % R. The ovals on the chart show the exact same characteristics........technical indicators that stay in extreme overbought mode as price escalates. On the chart below we have a new projection upper channel that we are now using for the medium term. This channel line has 4 direct touches on it Dec 2006, Feb 2007, November 2007 and July 2008 (right before the crash. We can also see that price did move above this channel in the March 2008 blow off top at 1033.
RSI is in the same condition as 2007 and although it is in overbought mode.....as long as price is accelerating and we are above 65-70, this indicator remains bullish. Over to the left you can see that 1200 to 1220 area is where the channel line is pointing to. Odds are favoring that is where we are headed. During the 2007 rally, there was an 11 week rally to that black trend line. Last week was the 12th week of this uptrend. I am measuring the start as week 1 where we penetrated the dotted sideways upper black line. This symmetry of time was one of the reasons I suspected a pullback to begin last week, but it was not in the cards. However, with that said, we have advocated that the trend remains up and for the most part, we have been letting price dictate when this rally will come to an end. The other signs will be when RSI and Williams % R comes out of overbought mode. We can see that in 2007, these indicators did come out of overbought condition, but the key was that PRICE DID NOT MAKE NEW WEEKLY lows when this indicators moved lower. If you look at 2007, as soon as we made new highs after the November consolidation, that %R moved right back into OVERBOUGHT condition and remained there for the entire 2nd leg of the 2007 rally. MACD also continues to suggest that this rally is not over either. So the bottom line in the MEDIUM TERM TIMEFRAME continues to be ----------expect higher prices. Now, we've had a 100 dollar rally in three weeks as the trend is accelerating from this breakout. This is very bullish action. We are getting it all. Long range weeks, bullish news, and a momentum that is almost parabolic. We discussed the fact over the last week that while gold is a precious metal, and the only real money that exists, it is also a PANIC INSTRUMENT. And ever since we moved above 1000, the panic grows. The news can't get any more bullish than it has...........Russia, China, India, Central banks buying. Tungsten bars appearing on the market, and the most successful hedge funds in the world are very long. So while the potential for a short term top was evident on the 60 min chart last week, I indicated by weeks end (especially Thursday and Friday) that the fact that we were HANGING around the channel lines on those charts for so long was tilting the odds back to up and that is exactly what happened late Friday afternoon. What about the downside potential ? Interestingly, gold has begun to detach from the other markets. The US dollar did not have a down week last week, although it barely held sideways. Now this is at a time when the US DOLLAR is at its strongest (November) month of the year. The fact that the dollar is barely holding sideways at such a time does not bode well for the sawbuck. Lets have a look.
Many Technicians are pointing to the divergence in the RSI and that is a very valid point. Elliot Wave analysts also point to the 78% retrace at the 74.85 ish area, and that is also a valid point. MACD is also a consideration as it has arrived at the zero area. However, there is a very bearish implication that is brewing on this chart and that is the downtrend channel (Big Red). Notice how price has been so weak that the heavily skewed downside channel line from the two tops at 89.62 and 86.87 have actually contained price during this entire drop. There is also a black wedge that has been drawn off the Nov 07 low and the June 08 high as an upper line, and a lower line drawn off the two major all time bottoms. Both of those lines point to the 74 area as critical mass.....where should price go thru those lines, a vicious drop to below the 70 area would occur. THIS IS REALLY A MAKE IT OR BREAK IT POINT FOR THE US DOLLAR. IF WE FAIL TO BREAK OUT ABOVE THIS RED CHANNEL LINE, and MACD turns lower, this market has the capability to go into free fall. And we are talking some serious stuff when it comes to global implications.
The extent of the duration of this drop is a key for gold bugs in as much as gold rally has been just as long. As long as we are not rallying in the US DOLLAR, the likely hood of gold dropping much is nil. BOTTOM LINE FOR US DOLLAR: By the looks of this channel construct, the US DOLLAR had better turn here or a break of the 74 area could be a waterfall event for the US DOLLAR. Should this event occur, expect gold to explode higher. It's worth keeping an eye on it in the next few weeks. We are either in the midst of a turn as some have suggested, or its so weak, we are seeing its last breaths here in November before it drops below the 70 area. Make NO MISTAKE...........THE DROP CAN DEVELOP AT ANY MOMENT. 74 is the last decent support area before the lows of 08 and the lower channel line somewhere at the 68-69 area. Until we see any strength that last more than a day or two, we have to remain bearish on the dollar. We recognize that a sharp move higher can develop, but on the opposite side, so can a drop. ANY DROPS BELOW last weeks low will be the first peg, then the 74 area becomes paramount. As long as we are below the 77 area, the trend remains down. Should we move above the red channel line, we will take note. There is one final thing to look at in the US Dollar..............and that is the ETF called UUP (UP US DOLLAR)
Here too we see RSI providing a divergence, a potential clue that the dollar is trying to firm. But this in itself is not enough. We need more.
Here we can see that the long term moving average (green) is now above the Medium term (red), a bearish cross developed in October.
This downtrend line (black) is the final support line on this chart.
Of real interest is the 40 million shares that traded hands three weeks ago. Look at the volume over the past month. Is this the sign of a bottom ? If it is, we still want to see PRICE RISE FIRST.
William here remains below the 80 level, but just barely. This is another indicator that is near flashing that some bottoming action is taking place, but does not seem yet ready either. Finally MACD is Neutral........at the zero line.
So what are we to make of the gold market ? On a medium term basis, if your an investor, you have to stay long here and hold. This weeks key resistance is the 1167-1188 area followed by 1200-1220. A lot is riding on the dollar as it is massively oversold and gold is massively overbought. That there is no doubt. To say that we won't correct is also not what the odds say. Indeed, all odds suggest we are overdue for a correction. But when we talk odds, that's just what they are. And there are a few times where the ODDS do not come in. Even the house at a casino takes a hit once in a while. And that is the situation as we go into this Thanksgiving week in the USA. The odds do favor a pullback in gold but the PANIC SITUATION could keep it moving up. The next medium term peak on the weekly chart is the upper trend line at the 1200 area. With a 100 dollar advance in November so far there is no doubt a pullback at any time could take place. But we have to favor price on the medium term and as far as core holdings, they still need to be held if your a medium term investor. That doesn't mean that you don't cull a bit on the way. I recently sold 1/3 of one of my holdings that had appreciated substantially and I feel fine with that. Should it correct, then I will buy it back. If not, I'll hold and ride what I have. What if anything could go wrong with gold? Barring a mass liquidation, it seems unlikely that the US Dollar is heading up. Its not like Oil or Gold. You can print as much as you need.............and then some. The US debt is so huge that it is unfathomable to think of any fundamental that supports higher prices. Could the nations come to it's rescue? They used to. I was in the camp that I thought they would be the likely hood decreases by the day. And how can we be bearish on gold when everyone is buying? A bull market leaves many behind because price does not correct until we are much higher and the easy money has been made. That is the current condition. When a development like this happens, it is best to let price do its thing. This week we see a few possible price peaks. First the 1167-1175 area where a rising trend line on the daily chart (not shown) is. The second area is the 1185ish area, where the length of this rally will equal the first leg up from Last Nov to Feb. Finally there is the upper channel line in our weekly chart at the 1200-1220 area. Support lies at the 1120-1130 area, followed by the 1137-1155 area. The 1144 area could also provide an interesting potential for a low. Bottom line: Do we think there's a correction due? Yes. But we have to wait for price to confirm that we have in fact peaked. Until that time, the medium term trend remains bullish and we expect higher prices this week.
November 17th 2009 - Ok, who painted the red panic button gold? Not so long ago, when you faked gold as in the Bricks gold scandal at the depths of the gold bear market, and you made believe you had the worlds biggest gold deposit and you didn't, you'd get pushed out of a helicopter at 250 meters in the air as geologist Michael De Guzman learned. That was that. Ruled a suicide of course. Boy that puts another spin on being the "fall guy" doesn't it ? Now things are different when you make believe you have the worlds reserve currency and it is sound.......even though the printing presses are running 24 hours per day, seven days a week. Instead of throwing you out a helicopter, they only christen you with the name...............and from henceforth, you shall be called, Helicopter Ben. For the bears who are still trying to fit this into a bear market rally from 2007, the pencils continue to need sharpening and eraser replacements need to be handy. For those who have been waiting for a pullback since 1000, they are nearing the point now where they only check the closing price as it just to discouraging watching the daily grind up. The gnashing of teeth from all sides draws near. Option call writers are buying up as much paper gold as they can to avoid bankruptcy, shorts are looking to buy from anyone but no one is selling, only at higher prices, the nations of the world are drilling their 400 ounce bars to see how much tungsten they will need to dispose of, the bears keep yelling, Where's THE INFLATION and the gold bugs are finally saying ..TOLD YOU ! Meanwhile the banking system continues to hemorrhage as all funds are allocated to everything paper and commodities and nothing to the private sector. And maybe its because the private sector is so scared out of their project plans that they dare not borrow as they sit and stare at the phone and computer screens waiting for any order at all to arrive. When your doing business in an economy where the government wants to call making a hamburger a production measure of output, you tend to scrutinize all data coming at you. The bankruptcy of CIT was a mere one day affair in the press. They were the institution that supplied 300,000 stores with holdover funds to use as they wait months for behemoths like Amazon and Wal-Mart to pay them their wares. It makes you wonder how small business is going to get by these next few months............unless of course the taxpayer gives CIT one more shot of taxpayer steroid money for the road. And the US Dollar, as the perma bears continue to call its BOTTOM, the liquidation process buying into ANYTHING continues. It doesn't matter if its Corn, Cocoa, Soybeans, Wheat, Gold, Silver, Platinum, Palladium, Butter, Sugar, Eggs, Cotton. I'm not sure if they've entered the Orange Juice or Pork Belly complex yet, but anything that hasn't risen in price and is not government regulated or nailed down, stands as good a chance of any for a major bull market. As soon as the dollars are printed and dispersed, another round of speculative buying into something ignites. The Hong Kong real estate market is just plain out of control and there is so much speculative excess in the market that the Japanese GDP is registering a potential flicker on the EKG screen. There seems to be a gold story every week lately. First it was China that was buying, then John Paulson, then the central banks, then India. It's been non stop. And with that buying comes the latest story.........400 ounce gold bars stuffed with Tungsten. The most interesting stories have been coming from the Rob Kirby camp. From what I've read there were actual shipments of TUNGSTEN DELIVERED TO THE TREASURY some years ago. Now, I don't know about you, but that gets me thinking and I'm sure you know of what? Meanwhile President Obama visited China this week to see if he could find where they share common ground with the USA? At least he wasn't laughed off the stage like Timmy G was a few months back. Nevertheless, the only common ground they share at this point is that they have to print up Yuan every time we print to keep the "peg" in place........and it is not ground they necessarily worship as they are just as fed up as anybody with the USA. Other than that, there is nothing in common. China has all the hard assets, the USA has all the paper. They have all the industrial sector, we have the service sector. They have all the money, we have all the debt. They hold all the cards..............and we are about to be pushed off the table as we have no chips left and no one is willing to lend us any as the card game is about to break up. Its late, and the players want to go home. As the contraction in the US economy continues, more and more business is folding up. Little by little the supply of goods will dwindle into fewer and fewer hands. The increased burden of tax and health care and commodities will push most into marginal gains and once the bottom comes and there are only trim business companies left, they will be forced to raise prices so as to survive. And then the real inflation should kick in. The most amazing thing of course is the stock market's continued rise and the bond markets refusal to see rates any higher than slightly above 4% on the long bond. And as the jobs fall and unemployment rises, the economic data just keeps getting better and Wall St keeps pistol whipping the shorts. All throughout this the gold market keeps on rising faster and faster. Who painted the RED PANIC BUTTON GOLD AND WHAT IS GOING ON with the "mellow yellow"? The monthly chart below shows that there is a certain bull market CHANNEL showing that a MAJOR BREAKOUT JUST MIGHT BE IN THE OFFING. IS the acceleration because we have overcome the top of the 21st Century Gold Bull market channel line. The spike and momentum since we exceeded the 1070 area shows on the monthly that that this is coinciding with a potential major channel line. And it seems we are attempting to move to a higher ground.
Is it just coincidence that gold is exploding higher here? This channel line construct shows that the major market peaks of price has hit this channel 4 times since the 2007 peak and provided resistance in early and mid 2008 as well as in February 2009. This most recent rise however seems to be busting through the upper end of this channel line. Goldtrends has been on a daily buy in gold since September at 960 and then again at 1010. Then October brought on MEDIUM TERM BUY SIGNAL ON THE WEEKLY CHARTS. NOW WE ARE GETTING SIGNALS FROM THE MONTHLY CHARTS THAT A MAJOR LONG TERM BUY SIGNAL IS NOW AT CENTER STAGE. Look at the volume in October. The major signal however can only come after November is complete as price needs to accelerate above the highs that November establishes. Are we are at the tipping point in the US dollar? It is either days away from a bottom...............or a MAJOR SWOON is about to engulf the US dollar to much lower levels. Now think about that. As fast as all the other nations are printing, we are still dropping like a rock in the US DOLLAR. But what about the inflation deflation debate? It is apparent to me that GOLD is more of a PANIC commodity than an inflation one. Inflation is the result of a broken system................but the PANIC sets in before the inflation. And when I say panic, I mean market panic. WHEN the public panic arrives, there won't be an ounce of gold this side of the Klondike to be had. Gold is sending a MAJOR SIGNAL THAT THE CURRENT SYSTEM of things is in grave danger of unraveling. There can be no other conclusion. The credit contraction that deflationists see is certainly happening in the private sector. BUT THE GOVERNMENTS ............so far............are printing faster than the oncoming debt collapse. And so it is filtering into every thing that can be purchased.............except United States real estate. Here, the supply of underwater value is swamping the leveraged market. Many are warning that a commercial real estate fall is next. Can the government keep upping the ante? While the above is certainly not an argument for or against inflation or deflation, I tend to look at it in a much simpler way. Here is some data I compiled last August when gold was below 1000 that was featured in one of the Mogombu Guru articles for which he did give me credit for writing. ========================================================== ========================================================== To me the inflation / deflation debate is simple. If your wealth is in dollars you live in an inflationary world. If it is in gold, you live in a deflationary world. Just look at the stunning results above. The coming week in gold is one in which for all intents and purpose we would expect a pullback. We think the odds favor that, but we are aware that melt-ups don't always pause for a pullback. Resistance lies at the 1144-1155 area and then the 1180-1200 area. Support is the aqua channel line at the 1090-1100 area. There is also mild support at 1120-1123 and while that could provide a bounce, 1090-1100 is the key. As long as we are above that area, the uptrend is intact. In summary, we look for a pullback, but know the trend is up. Barring a global melt down or a major currency intervention, the structure of gold looks very strong. We can't rule those factors out of course and we also recognize that the gold rally is a year old, and 450 dollars higher than the 08 low. We see gold at the upper channels of the 21st Century Bull Market channel and UNLESS THIS IS A MAJOR MELTUP..............all indications are that gold should be putting in a decent top and be ready for a pullback. Because gold is a PANIC instrument however and is such a small market, should the feds lose control any more than they already have, a MAJOR MOVE UP could ensue. That is really the crux of the matter. Is this a melt-up? If it isn't it is surely on the verge of it. Should gold hold above the channel that was penetrated in October, the potential for higher prices will be great. Bottom line: We remain in a bullish trend, but recognize this is an ideal spot for a pullback of some type to develop. WE think that the 1144-1155 area or the 1180-1200 area will provide an gold with resistance. On the downside, the 1090-1100 area and the 1060 -1070 price zone are the support areas for the coming week. Be sure to read our daily updates to keep up with this weeks developments. may you prosper this week
William
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November 7th 2009 - The day the Bears lost Control In was another incredible month as gold continued to outshine all other major investment themes by being the only investment that has broken out to new highs since the global meltdown of 2008. Not only is it making new highs (1100 this week), it is doing so in a fashion that accelerated the price this week in terms of velocity, momentum, volume, and daily price range. Even the pullbacks are chart bullish recently as the best the bears can do is get gold to consolidate and trade sideways for three or four days and then gold moves up again. This latest pullback over the last two weeks of October is a case in point. At a time when the seasonal aspect of gold points lower and at its weakest, gold's price pulled back right on queue as a price drop from 1072 to 1026 occurred. Because of gold's bullish aspect, the corrective tone was shallow. In seasonal fashion the price peak for the month occurred on October 13th, and the price retreat lasted until near the end of the month. Even the circumstances surrounding the pullback entailed options expiration and the rollover of October futures to December. From a time element, the October pullback for gold was for the most part behaving as what gold usually does in latter October. The difference is this. The rallies are longer, and the pullbacks smaller. That statement, when broken down to it's components, reflect the definition of a bull market. That's what a bull market is. It's a trend where rallies are longer and deeper on the upside, and the pullbacks are shorter and shallower in price and time. The level of that interaction in term of magnitude and duration provides the setting for how strong and powerful a bull market run or leg is. The magnitude of this event is one where gold spent 19 months hovering below the 1000 level and finally broke out to the upside. What about the fundamental demand driving the market? Since the beginning of September the gold price is up from 940 to 1100 in less than seventy days. What happened in late August? Technically speaking, its where the Bears lost control of the market. Let's look at that dynamic in action on the charts.
The red arrows at the bottom of the chart show the dynamics of a loss of control by the shorts. It occurred in late August. The fat aqua trend line at the bottom of the chart is the 2009 summer channel support line. Look at how many times the bears tried to collapse this uptrend. On nine separate occasions the bears shorted this market and every spike down was GREETED WITH FRESH BUYING. It is a great display of a market turning point. There was one final element necessary to complete the process and that was the point of recognition and that was where the shorts began to cover and NEW market participants entered at the same time. The resultant explosion in price is what I call that "point of recognition" where the last three highs on the charts were taken out in FIVE HOURS. That point was the MAJOR reversal of trend and therefore where the bulls retook took control of the gold market. Previous to that breakout day, As an aside, and shameful plug on my part, Goldtrends (in one of its few public disclosures) informed readers that a "buy" signal would be generated if and when price exceeded 958 and 964 on the charts just prior to the breakout. Was there a key fundamental change that was recognized in those few weeks by the markets? Yes. The dynamic in the above chart is where the "underlying" demand for a commodity was absolutely and totally overwhelming the supply. This is where the big market players, the commercials and the banking shorts could no longer stop the wall of buying that had materialized. What was that wall of buying? It was the great "Wall of China." The announcements came to the forefront at the beginning of May 2009. The next phase of WW III - "The Financial war" is on. Nations have now become buyers of gold. But not just any nation is China. For a shift to gold in there foreign reserves means no other than to take existing United States dollars and purchase gold with it. http://www.marketwatch.com/story/chinas-gold-buy-raises-eyebrows-for-right-reasons
Then the news kicked into full gear in August and the reality of gold's supply and demand equation as well as the physiological shift in investor perceptions reached a crescendo as the first trickles of investors realize that nations are buying gold and rejecting paper currency.
In bull markets, the news just keeps getting bigger and bigger. Just as the seasonal trends were about to take hold in the metals, a monthly string of announcements rattled the gold market and the effects on price is hard to dispute as you will see.
First came the September bombshell by the "Wall of China." And then the October bombshell ...... " Oil to trade in non US currency."
The demise of the dollar In a graphic illustration of the new world order, Arab states have launched secret moves with China, Russia and France to stop using the US currency for oil trading 
And yet another bombshell delivered in November........... "India buying gold."Here's the result of these announcements
Usually demand from jewelry and India tail off at this point of the year, and gold corrects much harder. The reports coming from India and the jewelry market were way below average this year as well. The bear's saw their chance in September and attempted to take the market down in the latter half of the month But this year its different. The investment community has stepped in and "demanded" gold in the physical markets and the paper tigers. (futures, etf's) Then just last week India dropped a "bunker buster" on the community by issuing a contra seasonal news story. It was BUYING GOLD!! The seasonal players, the perma bears, and the banks (who have shorted some 30% of Planet production) had to run for cover. The buying on the ask was so strong that it took back all of the selling of the past two weeks on the bid. The seasonal chart below indicates the last week of October is one of the strongest down weeks of the year. And in fashion, gold did pullback in that time frame. But the bullish aspect was how little gold pulled back in price, only 46 dollars, less than 5% during the total price retreat. This time frame usually ushers in a complete retracement of the September rally. This year's pullback in October, if we think about it, was just gold pulling back during options expiration and the rollover of the October contract. So technically speaking, that was very normal and it satisfied the October pullback.
As soon as November was ushered in, gold, like it has done in September, and October, took off running in front of the investment pack and made a new 21st century bull market high at 1100 dollars an ounce during the first seven days of the month. The seasonal chart in the past has provided a sufficient roadmap. From the highs in February, to the lows in July and August, and the current September and October rally, the seasonal pattern has been a great guide and that is why its good to take look on a monthly basis. I've drawn a red oval on the chart above to point out where we are on the timeline. This November rally we just had on the seasonal chart is usually just a fairly steady bounce on average, and a choppy motion at that. Due to its strength and the India announcement, this week in gold provided one of the best weekly gains in a while. If we look out over the next few months we can see that the seasonal aspect of gold is now entering a time period of choppiness (Nov/Dec). This average choppiness is due to the autumn correction sometime taking place during November. The question this all brings to hand is will there be an autumn pullback in gold or is it going to keep screaming up? Let's take a look at it from a longer term standpoint. The Medium Term Timeframe
The chart above is a very bullish chart and there is a major breakout underway in gold as the culmination of the 19 month consolidation (dotted blue sideways trend lines) has come to an end. All of the technical indicators are in full gear and after a brief consolidation at the end of October, gold is back on the move. For those who have not read previous updates on the medium term trend, we're monitoring the chart pattern of 2007 and the effects of that major bull market and comparing them with the patterns and indicators currently under way in the new bull market leg since gold moved above 1030. The chart above shows the 2007 rally as well as our current progress in the current rally. Most important is the fact that we have broken into a new zone of price parameters. The tiny purple uptrend lines on the chart above indicate where the next price resistance points should occur and where potential trend changes into corrective mode could take place. From a price pattern standpoint, we couldn't ask for a move bullish chart. We are accelerating in price, range, and in volume. We are near the proximity of total strength as the pattern is becoming every 4th week, a major up move takes place, and then price consolidates for the next three weeks. That has been the modus operandi since the autumn rally began pretty much. The next area of resistance should be the 1150-1175 zone and then the 1350 level. The current three areas of support is: 1) The 1000 area where the dotted blue line and the fast blue moving average reside. 2) The 950 area where the initial autumn rally began and where medium term (red) moving average has moved up to. 3) Finally the 880-900 area where the bottom purple channel line and the long term green moving average is on the chart. AS LONG AS WE REMAIN ABOVE THOSE PRICE ZONES, the medium term trend is up. Lets review the coincidental technical indicators included with the chart 1) Volume - Volume is expanding just like it did in the 2007 bull market run. (Using GLD as a proxy) 2) MACD Histogram - MACD keeps rising just like as 2007 compare the circled areas. 3) Williams %R - %R continues to be pegged in overbought area just like in 2007 and remains bullish. 4) RSI - RSI has entered overbought area just like 2007. Conclusion: Bullish Medium Term with very strong chart characteristics. Price accelerating. Odds favor a correction at some point but the main trend at this point is up and building strength. Action: When RSI diverges, and %R comes out of overbought area in conjunction with price bouncing off one of these channel lines, the medium term most likely will go into corrective fashion and a pullback/correction will take place. November is the optimal time a seasonal US Dollar rally takes place, and up until last week, the rallying dollar would have brought the price of gold down. But last week, GOLD DETACHED.....and rallied while the US DOLLAR was rallying. This makes things even more bullish as now gold is rallying against the currencies. Was it just an abnormality? We can say yes once. But should it happen again in the coming weeks, we expect gold to rise against the other world currencies dismantling another bearish argument against gold. Bearish considerations.......... Markets are one big paradox. In a runaway market, demand or psychology outstrips all bearish considerations. When it overcomes, parabolic moves up occur. Should that happen in gold, it will be the mother of all rallies as the mainstream enters. The potential to drastically move up here keeps growing by the day/week/and month. The downside considerations are huge, especially the large short positions of the banks who are being subsidized by the feds in order to avoid an outright panic. They've sold close to 30% of this years planetary output. Yet, every pullback for a few weeks provides sideways action and then another move up, putting shorts further in trouble develops. To me, the faster this move accelerates, the more apt we are for the US Government to take more drastic measures. Cycles From a "CYCLES" standpoint by the folks who make a living doing it, times now couldn't be more bearish. There is a confluence of cycles that are due here both short, intermediate, and even on a medium time frame that is suggestive that gold is about to experience The bullish fever is growing heavy as well. How heavy? Perma Bear Bob Prechter from ELLIOT WAVE INTERNATIONAL actually mentioned that gold could move higher in his latest televised interview. Granted they are still trying to pick a top at his newsletters, and one of these months they are going to be correct. Not to bash them, I like to read the Theorist every month. But the fact that Prechter is acknowledging the potential is a change. There is no doubt that all of the cyclical and technical factors are at their maximum. The demand swell is out powering it. The countries and reportedly some central banks are now in accumulation, and when the public arrives, it'll be a sight to see. But what about the autumn correction? Was the 4 week consolidation in silver and the 2 week in gold the correction? Here's the 5 potential scenario's as I see them. 1) The time frame now strongly suggest November would be the prime candidate for a 4-6 week pullback before the winter rally. At its earliest, gold should peak here in the 1100-1160 area this coming week and a final move to the 980-1000 area would occur into the end of November/December time frame. We think from there gold (barring a global meltdown) could move to the 1300's by Mid February. 2) The potential for gold to continue higher here and not peak until Thanksgiving is also a potential. In that scenario, gold moves to 1175-1200 and pulls back into Xmas and New Years, and then rallies to mid February, early March. 3) An "event" sets gold off in a parabolic move and gold doesn't correct, instead, just keeps on running up from here. The chart action supports this potential and if we don't pullback in November things could get out of hand quickly. 4) Gold is peaking now and a deflationary bomb is about to hit the market as gold (and everything except the dollar) swoons lower. Three of the four scenario's above calls for a much higher gold price. Even the 4th one calls for it. It's just that it calls for a big move down first. I have difficulty thinking gold goes to $700, but there are too many brilliant minds still entertaining a deflationary outcome. If we begin to follow their bearish script we will address the potentials. There is no need to consider it until gold breaks below the 950-975 area. Can you imagine the United States getting in the ring with China for a fictional showdown? Satirically speaking, the American enters the ring with paper stocks, bonds, currency, toxic debt which they cannot collect, and out of control borrowing for which they can never repay, an economy whose industrial production has been gutted and shipped to Asia and who depends totally on its major competitor for its credit and purchase of most goods!!! On the other side of the ring, the Chinese challenger enters the ring armed with gold, silver, 98% of all rare earths, energy deals with Russia and Venezuela, Iran, acquired natural resources and precious metals from Africa to Canada, all the industrial industry that USA handed to them so they could produce it for us, all of the American money, an economy that is growing at 8% GDP. Does anyone care to take a guess who is going to be calling the shorts at the G20 meeting this weekend? On a more serious note. In this age, the information age, I believe World War III is already underway and is not fought with guns and butter. Its fought with gold and hard assets and not paper. It is a financial war and the goal of the enemy is to acquire the wealth of and usurp the power of the USA without firing one single shot. While USA has been at the Party the real competition for power and control have been gathering together, forming alliances, and have implemented a plan to systematically dismantle the United States and remove it from the world throne. In this War, the "no-bullet" war, the removal from the throne cannot be stopped because of the method of extraction. Just like in the movie "2001 - a Space Odyssey" an Astronaut dismantles a super computer that has taken over the spaceship. He simply removes the computers huge memory banks..... one bank at a time until the computer at the end is basically rendered to the capability of a person who has undergone a lobotomy. Once the astronaut gained access to the memory bank, the computer could only stand by and watch itself get dismantled. By removing the dollar as the method of payment in the world Oil supply, China and a host of other nations have rendered a blow to this country akin to the memory banks being removed from HAL, the supercomputer we stated about in the last paragraph. The USA can just stand there and watch as the dollars removal of the world currency has begun, and like HAL, it is powerless to stop it. The end of the dynasty of the 20th century known as the United States is officially over. It is bankrupt. Caput as they say. It is akin to a home owner who has defaulted on his mortgage payment and at this point, has stopped paying but is still living there, pawning off the remainder of his "stuff" before the creditors arrive and take over all the assets and remove him from the premises. At that point, no one gets paid. Not the oil man, not the phone, not the credit card, not the TV, not the car. Nothing. He/she can put it out of their minds for the time being, but the day of reckoning does arrive at some point. The removal of the US dollar as world reserve currency is underway. China is not as far off as many think to be able to issue bonds that will be backed by the Yuan. When that happens, it'll be like that home run A-Rod hit the other night in the ninth inning (I think it was) against the Phillies in the World Series. Game over. The real parabolic moves in gold are said to be due to inflation. Did anyone really see prices go down from 1980 to 2000? Yet gold went in a 20 year bear market. Gold goes parabolic when the faith of the government and confidence is lost by the populous which shows up through fiscal irresponsibility. The inflation is the result of that governments inability to maintain control of all of its paper machinations and the debt machines inherently borrows to the hilt like a college student with 5 or 6 credit cards near an ATM at a package store. My point is that while inflation will come, the current threat of deflation still looms large. Once the college student is denied further credit, the party comes to an end. Is there any event a demand for US Dollars could occur? Yes. The US DOLLAR has replaced the Yen as the "carry" trade dollar. Should the value of the US Dollar rise against foreign currencies an unwinding of the trade could develop. All of these things have consequences that will affect gold and silver and while we do not know the future, it is difficult to see a world where gold demand will be decreasing. We've looked at the medium term picture of gold, lets take a final look at a shorter term chart. Earlier, we looked at a 3 year weekly chart of gold and we saw that gold was technically sound as a button. In the chart below, the shorter time frame points to three key price areas for the upcoming week. The is 60 minute December gold chart. There's a lot there but the basics are: The red arrows are the short term price RESISTANCE AREAS. Take a look at the gold price right now on the chart. LOOK HOW IT IS JAMMED into the TOP OF THE FAT UPPER AQUA TREND LINE. That pattern looks very bullish and any break above that aqua area should set off a run to the other red arrows in the 1120-1140 area. Should we move and close above those lines, it will indicate that the MOMENTUM of gold is increasing.
Gold is in an uptrend channel since July (Fat aqua trend lines). Those channel trend lines define key support and resistance areas for gold's current price range and fluctuations. As long as gold is above the bottom aqua channel line, the trend is up. Within the chart there are 3 gold arrows pointing to key price support areas. Two gold arrows are pointing to the SLOW (RED) moving average. The other gold arrow is pointing to a dotted blue line. That line is short term support for the gold rally. Anytime we are above that line, the short term trend is up and climbing at about a 40 dollar per month clip. The bottom support areas for gold is the red moving slow average and the lower aqua channel line which crosses the 1020 area. This lines can be used as a PIVOT throughout this month.......as either resistance or support, depending if price breaks above it. If price does exceed those lines, the potential to rally is substantial. Key turning point The potential for gold to actually fail here and not get above the aqua line would indeed usher a correction down towards the support areas I've listed. Bottom line: We either peak here short term at the aqua trend line or will do so this coming week at one of these resistance areas and price will retreat back down toward the dotted blue line in a correction ......or gold is about to accelerate quickly higher towards 1150-1200 by thanksgiving. We think that if there is to be a correction in gold that the most likely time for it to begin would be in November. We think it would be a pullback in a still up moving bull market, and that once completed, new highs will be on us during the winter months. Only moves below the 980-1000 area would warn that the medium term timeframe has issues and that a consideration of a deeper correction would be in order. THIS WEEK -- WATCH THE 1100-1105 area.........the aqua trend line we are at right now. A move above that area should give us a quick run towards 1150-1175. Should we hold that area, the potential for a pullback towards the 1060 area over the next few weeks might be the modus operandi for gold. May you prosper this week.
==================================================== November 2nd 2009 What about the gold stocks ?
One on the things noticeable in a bull market is how long stocks or commodities stay overbought. The metals have been rallying for almost a year now, and in its biggest pullback since September gold comes into the week only 3% from its all time highs. As we enter November gold is now up almost 400 dollars from its lows and the HUI has tripled, going from 150 to 450. Thus is it only natural that the HUI should pick this price level to pullback from. As we can see below, we've twice been rejected from a blue line resistance that has been in effect ever since the head and shoulder pattern from 2007. But the pullback thus far is only one that is coming back to test the down trend line. Though it is below the blue average (FAST) it has done so on numerous times during this choppy rally. And that quite frankly is probably the only worrisome thing about the gold stocks. It is highly unusual for stocks to be on a bull run with choppy patterns like this. More worrisome is the fact that they are well below the levels achieved in the heyday of 2008. GDX is much the same pattern, but here we can see that the moving averages are in better shape. With GDX we can see the massive volume surge that has accompanied the October timeframe. Disconcerting is the fact that GDX is lower now than September. Both HUI and GDX have also technical's (RSI / %R) that have clearly put the chart in corrective mode. The question now is do they pull back to only 50 or do we get the full correction lower? As we can see, the metals took a 10% dive last week and the coming test of the 38-40 in GDX is an important one as its downtrend line resides there. In the HUI the 350-360 area is a key spot similar to GDX 38-40. Should the downtrend line be broken, we would expect the GREEN long term moving average to come into play. So vicious was the correction of 2008 that this moving average is just now ending its descent as it moves sideways at 35 on GDX and 325 on the HUI. What next ? These charts are in kind of a no man's land as price is between the 2007 resistance lines and the 2008 downtrend lines. For now its kind of a wait and see but short term traders will no doubt be buying the downtrend line looking for a bounce. From a chart perspective, GDX is a average buy at this area, a good buy at 35 and a value buy at 28-30 dollar. Watch the 38-40 on GDX and 365-380 on the HUI as potential short term support zones and the red and green moving averages as secondary support. In sum, we see the gold stocks in corrective mode, and watching the % R and RSI to see if they bounce off of the 50 average. If this is autumn correction, then these indicators would be expected to reach the oversold areas before a bottom. A BOUNCE is likely at the respective downtrend lines. RSI and % R are already at or near the 50 area and this is also supportive of a bounce.
Lets see if the downtrend line does indeed provide support. It should at a minimum provide a bounce.
Gold - Waiting for the chop.......to stop On a weekly basis we've been using the 1070-1080 ish area as key resistance. This range was projected by our Aqua top channel line on the 60 minute chart. Gold has entered that price territory once hitting an all time high of 1072 on October 13th. On a daily basis, we've been using the 1063 ish to 1068 ish area as resistance. I say ish with my prices meaning near a certain price because I am much more flexible with my ranges and do not conform to the school of exact price performance on my support and resistance areas. Most newsletter will pick a number for support and resistance and then stay with it. My support and resistance flows with the market and with my channels and moving averages. To me, that is a much more logical fashion, i.e.; adapting to price change as TIME goes by. In other words, simply stated, my channel lines and moving averages either rise or fall, and I adjust the price support and resistance according to those changes. Last week, the high of the week was the 1068 area, the area of our daily resistance. And the price print came on Friday.......right when the dashed blue line was pointing to that exact 1068 spot. (See Oct 22nd update). While 1068 will still be a valid area to watch, so will the price where the dashed blue line is pointing to this week. On a support basis, we've been using the dotted blue channel line. In fact, we've been using this KEY line since the July timeframe. It was resistance in July and August and provided us with the key turning points at that time. Lets look at both sides. The downside The modus operandi for gold is to USUALLY DRIFT INTO A PRICE ZONE that is advantageous for the options expiration contract. However, that was a time when the "boyz" pretty much still had control of the market. It is clear that they are a wounded animal. We think that last weeks chop was an effort for the traders to bring gold down to its option range. But the MARKET forces that are within the market now are much deeper hands and pockets, and unless they are playing that game, they have no interest in seeing gold at the 1000-1010 area. The options expire on Tuesday, and given the fact that gold is hovering just around the dotted blue line and the example we used in September when the solid blue line gave way for a few days still leaves the possibility open. And the reason I say it is still possible is this. THE SEPTEMBER low and break below the solid blue line was EXACTLY DURING OPTIONS EXPIRATION. That's right. Should they still have control, then the potential to drop hard into Tuesday cannot be dismissed. The break of the dotted blue line and then the 1040 area would give the market the impetus the feed on itself for a few days. This could be viewed as constructive in that it would provide an October low for gold, it would give the small speculators a good shake, and it would provide an opportunity for the RED moving average or even the lower aqua trend line a major test. The constructive part would be for gold to potentially be rid of its autumn correction and open the door for higher price into November. IF WE MOVE BELOW THE DOTTED BLUE LINE and CLOSE BELOW IT say the 1040-1044 area, then that scenario will come to the forefront as the odds favorite. This will also flip the short term trend OUT OF BULLISH MODE, into Neutral mode for only the 2nd time since the beginning of September. For those who have read us for that long, our tendency is to LET PRICE decide the trend and since gold went bullish at the 958 and 964 area, and the medium term flipped up at the 1008-1016 area. We've come close a few times to go bearish on the short term trend, and the September 29th, 30th updates (lower on this page) laid out the parameters using the 975-980 area as the turning point and we showed exactly where the price would flip to bearish. The low turned out to be 982-983..........only a few dollars from our turning point. For coincident indications traders and market watchers can also focus on this: Anytime the EURO is above 149.20 and gold is above 1050 the short term TREND IS STILL INTACT on the upside. In addition anytime the US DOLLAR is below the 75.60 area at the same time, ODDS favor that DOWNSIDE pressure remains in the sawbuck and that the short term uptrend in gold is intact. We recognize the PRICE PATTERN DYNAMICS that are evident on the currency charts from an Elliot Wave perspective. They are suggestive that the US Dollar could be due for a bounce or a complete trend change as some have forecasted. In fact, November is usually a rally month for the Sawbuck so their timing is in line with the seasonal. The Euro's rally looks old and tired as well. And we are well aware that gold seasonal downtrend is now in full force during this time of the year. We've been asking the question ourselves about this consolidation that gold and silver is in if we are in fact witnessing the AUTUMN CORRECTION/PULLBACK now. Silver's peak was a month ago, right where its seasonal trend turns down. Gold downturn usually begins a few weeks after, and that is what has transpired as both metals are in a current consolidation. If this is indeed true then gold has the potential to continue this sideways to lower action, and we could indeed receive an options spike this week. Here's how we'll handle the downside should it develop. BOTTOM LINE TO DOWNSIDE: We know the seasonal points down, we know that the COT suggests LOWER PRICES, we know that an important Elliot price is at hand in the US Dollar. We respect it all. However, we must close under the dotted blue trend line in gold and move below the 1040-1044 area for us entertain the continuation of the pullback. We'd want to see the Euro below the 148.75 - 149.50, and the US dollar should be above 75.00 zone for us to entertain that the current pullback is going to extend further this week into an month end low. We recognize that this is entirely possible and that a spike low to the 1000-1010 area at options expiration cannot be dismissed. Should we get such a dip, we will be monitoring the situation carefully for a potential fall low. The upside After having the short term indicator in bullish mode for 7 out of the last 8 weeks (one week was neutral shortly after we peaked at 1020 and we pulled back to 985 during that time) the ODDS are still in favor of the upside for gold and the short term trend will remain bullish until we get a close below the dotted blue trend line and the 1040-1044 price zone. It's not that we don't see the potential bear factors that are potentially showing up for gold, its just that we want to see price confirm them first. Just as there are factors that might suggest a possible trend change for the US Dollar such as Wave analysts pointing out that the Sawbucks ability to hold the 74.85 area last week, a 78% Fibonacci retracement area and a level where there is significant symmetry in the wave structure for a potential turn, we want to see gold actually begin to make lower lows and break below some of its support areas before we entertain that potential. Certainly traders who want to bet on that turn have the parameters from which to set stops. While I certainly respect that price area (74.85) my Friday update listed where I thought the key area on the dollar chart was and that is the 74.00 to 74.25 area. With all of the factors coming into play on Monday, one would think that the trend of gold could continue its pullback. Sure, I see that. I think one can make a case that gold could just as well have bottomed on Friday with gold's SPOT PRINT PRICE of 1049.30 and that one more pop to the upside could be the odds favorite on the short term just as well. The options expiration, SHOULD IT BE IGNORED and gold begins to rally here on Monday morning could set off buying as option writers and short positions would all come under pressure. Even if gold remained sideways but did not break below the dotted trend line would be enough to continue the pressure to the upside. Ever since the beginning of September, there can be no denying that strong buying forces have been present. We've watched the Crude oil market breakout of a consolidation area where its seasonal average should be pointing lower and we think the potential for gold to do the same is a supportive argument. In fact, We think that if crude moves above the 83-85 area we should get a rally to the 95-100 area. When we see Corn above $4 bucks, Soybeans above $10, Wheat above $5, Sugar above $.20, Silver above $17 and Copper above $3, its pretty difficult to be bearish gold and bullish the dollar. But here also we will LET PRICE determine what the most likely trend is for the week and for the coming month as well for that matter. Resistance for gold begins at the same level as we had last week, the 1058 area. We think initial resistance range is the 1058-1068 area, BUT THERE ARE CHANGES to the weekly resistance areas. For this week, the UPPER AQUA channel line is now showing resistance to be the 1085 area and the tiny red trend line off the tops is now pointing to the 1090-1092 area as resistance. THEREFORE, KEY RESISTANCE FOR THIS WEEK IS THE 1085 - 1092 area as the channel lines continue to get higher. However, should we move below the dotted blue line, we would expect gold to test the 1030-1038 area. Bottom line: Neutral, see the daily report for guidance once we move out of this 1050-1070 range.
We think the upside potential is the top aqua channel line or the tiny red line suggesting upside potential of the 1085-1092 area. On the downside, the dotted blue trend line and the moving averages are support. Finally the aqua bottom channel at 1000 and the gold horizontal at 980 are key support levels.
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OCTOBER 17, 2009 Gold – Have We a Confirmed Weekly Breakout? by Bill Downey October 18th, 2009 (11;54 pm EST USA) For the past 20 months, gold had been in a trading range of 700 to 1000. Closer inspection of gold’s price shows that gold only traded below 850 for six months of the 20 months and the lows were at the height of the meltdown of 2008. We can infer from this observation that gold’s only major correction was indeed at a time when a liquidity crisis developed on a global scale. In fact, since the 1033 high of March 2208, with the exception of one close at the depth of the liquidity crisis, gold has never closed below $800 per ounce on a monthly basis. With the new highs we have seen in October, the time has arrived where gold is making an important decision in its medium and long term price direction. In other words it has arrived at a major inflection point when viewed on a price chart. At Goldtrends, we’ve been tracking this medium term breakout scenario and this is a follow-up to some of the recent articles we have published. The chart below shows this most important action.
I have included a few technical indicators which I consider coincidental that I look at. What I mean by coincidental while price action is what is most important, I’ll look at the technical indicators to see if they are acting the same way as the last rally in 2007 to assist in confirming the price move. The more we see things the same as in 2007, the more confident we can be that a similar price advance is developing At the bottom of the chart is a volume graph. I overlay the volume of the ETF stock GLD as my proxy so as to observe volume patterns. So far, we’ve seen a volume increase, albeit a huge spike would be nice on a major up week. Above the volume graph we have a MAC-D histogram graph. Here we are watching if the bar rise resembles the same as they did in 2007. We were concerned a few weeks ago because a weekly bar came in lower than the previous week. But the last two weeks each put a new higher bar and now this indicator is once again mirroring the 2007 timeframe. Above the MACD graph is an indicator called Williams %R. It’s an oscillator that measures overbought and oversold and thus its function attempts to pick turning points in trend. The oval circled portion of 2007 demonstrates that in REAL bull market impulsive bull leg price runs, these indicators can stay pegged in overbought condition throughout the rally. Not only that, but when they come out of overbought mode, it’s usually a good signal that a potential price peak has been achieved. For now, the indicator is currently in the same position as it was during the 2007 bull leg rally. As long as it remains above 80, it will be mirroring the 2007 timeframe and odds will favor the rally continuing. Finally at the very top of the chart we can see that RSI is now just below the 70 area. We see in 2007 that RSI can move above 70 and remain there for a while. Going into the new week we have arrived just below the 70 area and until we make a NEW HIGH THIS WEEK above 1080, we will respect RSI’s warning. If price moves above the 1083 area, we will assume that RSI is also going to remain in overbought mode for a short term as the market rallies higher. Observations: (a quick review) Indicators stay overbought in bull market legs and trends only end or correct hard once they come out of bullish mode. As long as they are modeling 2007 and price is doing the same, we think the “ODDS” FAVOR A MAJOR BREAKOUT. Do we have a Breakout in gold? YES. We do. We have an INITIAL BREAKOUT. To better understand the position that Gold is in let us draw this parallel. From a visual perspective, the bar from last week on the weekly chart is akin to the space shuttle on its launching pad and there is no doubt that the countdown ended and liftoff occurred with the unemployment report a few weeks ago as gold moved up 75 dollars that week. So we have liftoff. The upcoming few weeks can be paralleled to the shuttle’s key moment called “throttle up.” The throttle up command is where the space shuttle’s o-rings gave way during that horrific day it came crashing down to earth. In the same manner, gold is set up at the “make it or break it point” on the Medium Term timeframe in price. In other words, this is where gold is given the throttle up command. If things are to go wrong with this breakout, this is the most likely place it’s going to happen. This is where the o-rings can blow. What about a pullback? We could get one but it’s not a necessity. The rally of 2007 did not have one as the strongest rallies many times do not have a pullback until higher levels. An excellent example of this was when gold broke above the 960 area in September when we achieved a daily breakout of price. It just never pulled back until it reached 1000. Now let us address the downside or failure potential that I spoke about in the illustration of the space shuttle “throttling up.” What I want to discuss is the potential for a BREAKOUT FAILURE IN PRICE. This condition would mean that gold is peaking now and a reversal lower is about to occur. This potential cannot be dismissed and it just so happens that a pretty good article was published on the subject recently by Kaplan I believe, that suggests there are many more failed breakouts these days as technical analysis becomes more main stream and false breakouts are orchestrated to draw in victims. Let’s take a look at the dollar versus gold. In the chart below we see a very similar pattern as the gold chart with one important difference. The breakout thus far has only breached the upper dotted trend line and has NOT made a new high thus far. The reason is simply that while gold has made new highs, the dollar has not made new lows that parallel the March 2008 highs. Another important consideration is that last weeks close was near pretty much at the lows of last week. While there can be no doubt that the dollar is a currency that is in trouble, might there be just a little too much bearishness over the short term? It’s not that it isn’t justified, but at only 3% bulls, the theater is crowed with a lot of bears in the dollar camp. While this is not a sell signal in itself, it is suggestive that we need to keep a close watch just the same. If the dollar were to make a move above the March highs in conjunction with gold closing above the 1083 area, it would go a long way in confirming that the current rise in gold has still legs to go higher.
From a seasonal standpoint the next 8 weeks are usually the dollars strongest time period of the year. What next? There are two critical TIMEFRAMES for gold in which a fall pullback usually occurs in the metals. The months of October and or November have on average provided that time period for a fall low point many times in the past. But discerning exactly whether October or November being when the pullback will occur this year is proving difficult. We can only review and weigh the evidence and infer what the data suggest are the best “odds” for the timing point. Let us begin with October. The month of October is USUALLY THE WORSE MONTH OF THE YEAR FOR GOLD on a seasonal 17 year average. But they are not always big corrections. In a very strong market sometimes it’s just a sideways pullback or a quick pullback and the trend starts higher right away and then rallies to the next timeframe or resistance area. For instance, let’s zoom in a bit on 2007. It may be difficult but try and look find the month of October on the chart below for 2007. If we hone in on there we can see that after a sideways first half of September, October rallied straight through until the second half of the month and a pullback finally developed that encompassed the month of November. It’s hard to see, but the point is that gold was so strong that even though there were cyclical forces at work gold did not sustain a hard correction, but more a sideways type of action that lasted until Thanksgiving. Once the correction was complete, gold rallied into the mid February timeframe.
The purpose of this observation is that the FIRST OF THE FALL cycles are exacting their pull on the gold market. Even though we made a new high last week, the gold market has been acting in a choppy and overlapping price pattern on the shorter term charts last week. Last Thursday, gold began the first real pullback we’ve seen in October correcting from $1072 down to $1044 by Friday morning on the COMEX. If this is a real breakout in price for gold, it should NOT CORRECT HARD because new bull legs are usually very strong. It might meander here in the 1025-1080 range over the next week or two into the end of October and begin another move upward. The gold seasonal average shows that the last two weeks of October can see sharp pullbacks so we should not be taken aback should gold go into a corrective phase here. How about a correction back to the 980-1000 by the middle to end of November? Yes. That is a possibility. While we don’t know exactly when or how much just yet, we do know that the odds favor a fall correction in gold and there are some price and time targets we can speculate on. When one gathers all the technical data, the dilemma one is always faced with are the conflicting set of forces between bull and bear and it is a daunting task, especially in a market that is so charged up like gold. On the surface the fundamental and geopolitical factors seem overwhelming for gold and it is hard to imagine a scenario where gold would enter a major correction. And that is the problem with markets and perception. Let me ask the question another way. If I would have told you on March 9th, 2009 when the Dow Jones stood at 6600 that we would see Dow 10000 before Halloween you would have thought me to be insane. The breakout we are monitoring is of medium term proportion in gold. Over the next 30 or so dollars on the upside we want to proceed with caution just to be sure that gold is ready to move forward NOW. So what is an investor or trader to watch? Is there any one indication we can look at that would put the odds in our favor that this breakout is not a fake-out? The question of higher price, when broken to its smallest component is whether the demand (bulls) is going to OUTSTRIP the supply (bears). We have been told that the supply of gold is miniscule and there is actually more money invested in a Microsoft or a Wal-mart stock than all the gold on earth combined. The problem is that many vehicles for gold are really for paper and not for real gold. When gold and silver ETF’s were first introduced they were hailed as great investment vehicles. In retrospect, the money printers were smart enough to realize that the demand of gold would outstrip supply, and these ETF’s are nothing more than PAPER gold, which in essence has shifted the investment demand from physical to paper and has aided in price suppression. Since we’re dealing with paper, and since the governments and central banks of the world have probably been suppressing the price, gold bugs are up against a formidable enemy. This is an enemy that rarely ever loses a bet. Confirming the breakout In my many years of watching price charts I’ve seen numerous breakouts of one week end up being the high point and much lower prices end up coming in. But I’ve also noticed that when there are TWO WEEKLY price bars above a breakout point, the odds diminish that a breakdown will occur. And then there’s the THREE WEEKLY price bars in which the third bar makes a new WEEKLY HIGH again. This is usually a reliable signal that confirms a price move to higher levels. Therefore, if the price of gold exceeds the 1075-1083 area the ODDS will greatly increase that a new price level in gold is about to be discovered by the markets and we are in a confirmed new Medium Term uptrend and the 20 month consolidation should be complete. Now, as every investor and trader knows the only guarantees we have in life are death and taxes. There are no others. It is and will always be a speculation that while the odds are in your favor, they are only odds, and as the Dow showed us this year, anything is possible in a world where you can CREATE MONEY that is backed by NOTHING. What’s the signal? If we move above the TOP AQUA CHANNEL in the chart below above the 1075-1083 area it would add credibility to a sustained Medium Term Breakout in Gold has occurred. 60 Minute December Gold since the rally began at the beginning of September
Let’s address the downside. The low in gold last Friday was a dip to the 1044 area. Upon close inspection you can see that it bounced off a tiny dotted blue trend line that was resistance for almost the entire summer. We view this area as first level support coming into this week. There is another tiny blue line just below the dotted pointing to the same price position that the green moving average currently stands at. This is the 1027 area and when combined with the red moving average on the chart, we view this as second level support at the 1020-1027 area on the short term chart. If this is a market that is ready to breakout, we should not be violating those areas in price on the downside and gold should have no business trading below that area unless we are in our fall correction. What are the odds ………………..? Listed below are the important price points for the last two weeks of October and how we will categorize the trend status of the medium term price breakout that we have witnessed with the breakout to new highs. Anytime we move below the tiny dotted blue line on the 60 minute chart above, roughly the 1044 area in gold and where last weeks low bounced off of and it becomes resistance instead of support, then the odds will favor that gold is in a pullback mode. Anytime price reaches the green and red moving averages on the 60 minute chart above, roughly the 1016 to 1027 price area, odds would favor gold attempting a short term bounce in price and trying to establish a pullback low. If gold is in breakout mode for October and the trend is still STRONGLY UP, we would think this area might be a support area for gold.. Anytime we are MOVE below the green and red moving averages odds will favor that gold is not yet ready to breakout, and the autumn correction is under way as well as a medium term test of the initial breakout area in the 980 to 1008 area. Anytime we drop below the 970 area, the odds for the time being, will suggest that gold has had a breakout failure and we would look for a correction low near year end 2009 before gold is ready to attempt another shot at a breakout. Let’s look at one final chart as a downside indicator.
The chart above is the US Dollar versus Gold. You see the price pattern is very similar to gold’s chart but upon closer inspection we can see that the current run has not made a new high yet. While gold is at new highs, the dollar is still above the lows it established last year. Now last weeks price bar was interesting in the fact that it was the FIRST bar that moved above the upper dotted trend line and then seems to have made an exact high equal to that of March 08. Of particular note was the fact that the close was at the lows of the week just barely above the dotted line. This might be suggestive of nothing, but at a critical price point such as gold is at right now, we want to have as much confirmation as possible that gold is indeed heading to higher price targets. THUS FAR, gold is only making new highs in the US Dollar terms. What we are scanning and looking for is another important currency or something that gold is making new price highs per ounce.
EPILOG - the upside I’ve saved the best for last if you’re a gold bug and that’s discussing the upside. As I’ve stated above, while there are no guarantees I’ve seen examples in commodities when prices are set up like this where huge moves can occur. While the third bar up after a breakout is not a fancy sounding signal, nor does it sound very sexy for that matter, what we are concerned with is getting it right. The ideal situation of course is an investor who is already long the metal and some stocks and is thinking of adding on should we get a good rally confirmation. And while adding at higher prices is difficult, it is even harder if you’re a new investor coming into the market for the first time. Many a gold bug has had their wings clipped in this fashion and when one goes for great reward, there is always great risk. Let’s talk price support areas for gold. The 1038-1044 area is the first area of support at the dotted blue channel line. We have secondary support at yellow moving average down to the solid blue channel line combined with the green and red moving averages at the 1020-1027 area and then weekly support at the 980-1008 area.
MAJOR RESISTANCE HERE AT Aqua channel line and tiny red line at the 1080-1083 area
First Resistance here at dashed blue line at 1058 to 1065.
First support here at dotted blue line 1044 ish area.
Second support here at the sold blue line and the green and red moving averages covering 1020-1027.
Bottom line Aqua channel line now at the 996 ish area.
For resistance, we see the 1075-1083 area as resistance. A move above that area would suggest we’re heading towards the 1200 area in gold in early 2010. AS LONG AS WE REMAIN above the support areas listed gold has a good chance of making new highs. As far as other things to keep on the radar, we’d like to see the HUI and the XAU gold stock index make new highs. Gold stocks do not TYPICALLY underperform gold and it is always worrisome when we see this kind of action. There are certainly some mining stocks that have had tremendous moves over the past 11 months………….some very warranted and others totally absurd but that is the way of the markets. Buying a breakout can be scary but if it’s a REAL BREAKOUT, and your positioned at the right place, you can catch the “SWEET SPOT” of the move………the spot where price enters an almost parabolic rise and the pullbacks are almost non-existent as the majority come to the point of recognition and then all jump in at once and it ignites price much higher. If we are indeed in a breakout mode, regardless of a pullback, the price of gold will be higher by the time February of 2010 arrives. For WHAT IF purposes only, the last chart this week takes a look at what a breakout on the chart might look like come the February time frame should a true breakout be achieved.
The chart above is a look at what I’ve dubbed the 21 century gold bull market. It is a thing of sheer bullish beauty isn’t it? Over the life of this new bull, we can see that there exist three main channels. The red channel is the current bull market trend. We are at the upper end of that channel. This channel grows almost a hundred dollars a year as gold has gone up 300% over the last nine years. So it is still a very aggressive channel. From 2004 we have a black momentum channel that has developed. A confirmed breakout here above the 1083 area would suggest that should gold follow a close symmetry to what we’ve seen in this bull market, that it could reach the top of the black channel line for a third time in this new bull market. The ideal scenario would project the mid winter peak to be above the 1200 dollar area in gold sometime in mid to late February. Should GOLD begin to close below the UPPER GREEN DOTTED consolidation line on a monthly basis under the 970 area, it would suggest that a breakout for what ever reason has been delayed. Gold bugs should not be dismayed as gold is in great long term shape and as long as it remains inside the red channel uptrend. Even a pullback all the way to the lower black channel line at the 880 area would still leave gold within the black momentum channel. When we take things in perspective, gold bugs would love to see this breakout here long term. They can at least rest assured that at this moment in time gold is in a long term uptrend and there is good support under the market due to the demand/supply factors and the geopolitical and financial events that have and are transpiring. For 5000 years gold has stood the test of time as money. For the last 40 or so years, a return to paper money paved……or I should say,…….printed the way for the global renaissance to transpire. When we think about it, it seems ludicrous that gold somehow got abandoned for paper. When one gets right down to it and ponder why, it’s probably because there was not enough gold on earth to fight Hitler. The opportunity to remove gold as the reserve currency and substitute the American Dollar made it possible to “CREATE” as much money as was needed to succeed in WW II. And that’s probably what spawned Bretton Woods in 1944. Thus a return to the gold standard would mean no more wars as they would be unaffordable. It would mean that price stability would return to products and credit would only be given to those who could pay back. A banker will lend paper to anyone who can sign his name until the cows come home because it’s NOT REAL and if he runs out, more will be printed to bail him out. But he will not lend gold in that manner. For if he does and the gold is lost, the depositors will simply find the banker, and ……..well, hang him. BOTTOM LINE: Regardless of an autumn correction, the prospects for gold look fantastic for the next few years. I think the only thing that could derail the gold market (and everything else for that manner) would be if we had a systemic meltdown of the financial system as a mass credit contraction wipes out all assets. Even then what would arise from the ashes? Gold would. The value of gold has been the norm for centuries. In fact, gold is the second most used word in the Bible. (God is first most used word) Gold will always have a unit of purchasing power and will be around long after we’re gone May you all prosper in the coming week,
Bill Downey *** 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. ====================================== OCTOBER 11 2009 Gold – Break out or fake out? by Bill Downey October 9, 2009
For the past 20 months, gold has been in a trading range of 700 to 1000. Closer inspection of gold’s price shows that gold has only traded below 850 for six months of the 20 months and the lows were at the height of the crash of 2008. The time has now arrived when gold is making an important decision in its medium and long term price direction. In other words it has arrived at a major inflection point when viewed on a price chart. Medium Term Breakout For about 5 weeks we’ve been watching gold’s price consolidate right below the medium term dotted channel line on the chart below. We’ve observed the many similarities that are evident on the chart from 2007 during the last bull market leg (red arrow above the lower dotted trend line). We’re using this price action as a guide because it was a real bullish impulse leg and we believe the pressure here at the 1050 level and the first major breakout bar is just as important if not more so than the similar occurrence in September of 2007. Should the price action continue in a similar price pattern, we can be much more certain in a confirmation that the breakout in price above this higher dotted trend line on the chart is a price move that has a high degree of sustainability as was the case in 2007. The chart below comes courtesy of www.stockcharts.com I’ve highlighted the key areas we are watching. First and foremost on the chart are the two red arrows. Notice how the breakout of 2007 developed from the position of price breaking thru the bottom dotted channel line with a long range week in price when it broke thru the channel line. This week we had a 75 dollar rally thru the channel line. A major long range day was achieved. This lends a lot of credibility to the idea that gold is breaking out to a new price level and if this current move is indeed a bull market leg, it should have a lot of similarity to the move of 2007. We want to see other things on the chart fall in place as well. Let’s now go to the bottom of the chart. For a volume study purpose, I have transposed the volume from the Gold ETF called GLD. As you can see, the VOLUME thus far is CONFIRMING a rise in interest and price. While that is a bullish factor no doubt, a MAJOR Day of over 200 million shares in breakout mode would be a major signal. But as long as we have a new level of volume increase that will be sufficient to add this to the bullish case.
I have included a few technical indicators which I consider coincidental that I look at. What I mean by that is for me, price action is what is most important. I only look at the technical indicators to see if they are acting the same way as the last rally in 2007 to assist in confirming the price move. The more we see things the same as then, the more confident we can be that a similar price advance can continue moving higher. Above the volume graph we have a MACD histogram graph. Here we are watching if the bar rise resembles the same as they did in 2007. We were concerned last week because the weekly bar was lower than the previous week. But this week put a new higher bar and now this indicator is once again mirroring the 2007 timeframe. Above the MACD graph is an indicator called Williams %R. It’s an oscillator that measures overbought and oversold and thus its function attempts to pick tops and bottoms. The oval circled portion of 2007 demonstrates that in REAL bull market impulsive bull leg price runs, these indicators can stay pegged in overbought condition throughout the rally. Some Technicians might point out that this indicator is warning of an overbought condition which might lead to a correction, and they would be right. But if we think about it, the reason that it’s called a bullish rally, or a bull leg is because price is overbought on a relative short term basis. That’s what a rally is. Besides, the data from 2007 suggests that price can remain overbought for a long time. The key is when the indicator begins to drop below the 80 area like in March of 2008. It gave a great signal that the rally was complete. For now, the indicator is currently in the same position as it was during the 2007 bull leg rally. As long as it remains above 80, it will be mirroring the 2007 timeframe and odds will favor the rally continuing. Finally at the very top of the chart we can see that RSI is now just below the 70 area. Here too we see that RSI can move above 70 and remain there for a while. Going into the new week we have arrived just below the 70 area and we are proceeding in the same fashion as 2007. Observations: (a quick review) Indicators stay overbought in bull market legs and trends only end or correct hard once they come out of bullish mode. As long as they are modeling 2007 and price is doing the same, we think the “ODDS” FAVOR A MAJOR BREAKOUT. Do we have a Breakout in gold? YES. We do. We have an INITIAL BREAKOUT. To better understand the position that Gold is in let us draw this parallel. From a visual perspective, the bar from last week on the weekly chart is akin to the space shuttle on its launching pad and there is no doubt that the countdown ended and liftoff occurred with the unemployment report a week ago as gold moved 75 dollars in one week. So we have liftoff. The upcoming week or two can be paralleled to the shuttle’s key moment called “throttle up” where the thrust to escape the earth’s gravity is enough. (I’m not sure if that is the exact function but this is for illustrative purposes). The throttle up command is where the space shuttle’s o-rings gave way during that horrific day and it came crashing down to earth. In the same manner, gold is set up at the “make it or break it point” on the Medium Term timeframe in price. In other words, this is where gold is given the throttle up command. If things are to go wrong with this launch, this is the most likely place it’s going to happen. This is where the o-rings can blow. At this point technicians might ask, what about a pullback? Can’t there be one? Again, yes. Of course there can. The rally of 2007 did not have one until a good move had occurred as the strongest rallies many times do not have a pullback until higher levels. Now let us address the downside or failure potential that I spoke about in the illustration. What I want to discuss is the potential for a BREAKOUT FAILURE IN PRICE. This condition would mean that gold is peaking now and a reversal lower is about to occur. This potential cannot be dismissed and it just so happens that a pretty good article was published on the subject recently by Kaplan I believe, that suggests there are many more failed breakouts these days. I don’t have the time to verify that statement, but we do know there will always be some failures that occur in markets. What next? There are two critical TIMEFRAMES in which a fall pullback occurs in the metals. October and or November have on average provided low points in the metals. And discerning which period the pullback will occur is most difficult to do. However, one must review and weigh the evidence and infer what the data suggests the best “odds” are for the timing point. What can we discern from this? First, the beginning of a pullback here would most likely turn into a correction as the month of October is USUALLY THE WORSE MONTH OF THE YEAR FOR GOLD on a seasonal 17 year average. But they are not always big corrections. In a very strong market sometimes it’s just a sideways pullback or a quick pullback and the trend starts higher right away and then rallies to the next timeframe or resistance area.
For instance, let’s zoom in a bit on 2007. It may be difficult but try and look find the month of October on the chart below for 2007. If we hone in on the 4 October bars you can see that there were actually 3 attempts to bring the price down. The bars are just above the red arrow in the October time frame of 2007. For two to three weeks there, price was dropped during the week but would come storming back by weeks end and price would close at the top of the range. Its hard to see, but the point is that gold was so strong that even though there were cyclical forces at work, gold consolidated in a tight range for a few weeks and then rallied strongly to November. Finally in November a pullback started. See the sideways action in November and early December during 2007 ? There was a five week consolidation and then price took off in December again and rallied strong into the February winter peak. The purpose of this observation is that the FIRST OF THE FALL cycles are about to TURN DOWN. If this is the real thing, gold should NOT CORRECT HARD because it is strong. It might meander here in the 1020-1080 range over the next week or two at the and then begin a move upward. For a more bearish perspective however, there is a 16 week gold cycle that is coming due around this time frame. The bottom line is that there is usually a correction in gold during October or November. On average, gold usually begins a pullback in this time frame from a seasonal basis and they can be sharp at times. How about a correction back to the 980-1000 area into November? Yes. That is a possibility. The other potential move would be for gold to continue higher in a rally towards November before a real pullback would occur. When one gathers all his technical data, the dilemma one is always faced with are the conflicting set of forces between bull and bear and it is a daunting task. So what is an investor or trader to do? Is there any one INDICATOR OR THING WE CAN LOOK AT TO CONFIRM THAT THE ODDS FAVOR A CONTINUATION ? YES. First off, the question of higher price, when broken to its smallest component is whether the demand (bulls) is going to OUTSTRIP the supply (bears). Since we’re dealing with paper, and since the governments and central banks of the world have probably been suppressing the price, gold bugs are up against a formidable enemy. However, should there be a panic, the tide would surely overcome the forces. THIS WEEKS BAR suggests they are in big trouble………….and a mega battle is underway. Confirming the breakout If the price of gold exceeds the 1075-1080 area the ODDS will greatly increase that a new price level in gold is about to be discovered by the markets and we are in a real new uptrend. Now, as every investor and trader knows the only guarantees we have in life are death and taxes. There are no others. What’s the Plan? From a medium term standpoint, if we move above last weeks highs in the chart below, above the 1075-1080 area it will add to the bullish medium term chart pattern.
But even if that occurred this will not negate a fall pullback at some point. So, should I add to my positions on higher prices, it will be a SMALL position. Rather, I would look to add to positions when we get the fall pullback in the expectation of higher prices in 2010. We will update on those levels once the pullback begins.
Let’s talk support this week. The 1038-1044 area is the first area of support at the dotted blue channel line. We have secondary support at yellow moving average down to the solid blue channel line at the 1020 area. For resistance, we see the 1070-1075ish area where the red resistance line meets the upper Aqua channel line. A move above that area would suggest we’re heading towards the 1130 – 1150 area in gold. AS LONG AS WE REMAIN above the fat horizontal gold line at the 983 area, the medium term uptrend remains intact. For the short term, as long as we remain above the dotted and solid trend lines at the 1020-1040 area the short term remains higher. Tactics This week bullish traders might look at the dotted blue line near 1038 or the solid blue line near 1020 as potential targets to go long. Any move below that area and traders should be skeptical of the short term trend. Bears at this point should remain nimble until some clues that gold is ending its uptrend appear, however, those who think an October pullback will develop could use the 1060 or 1075 area as potential price targets with stops near 1083. Resistance is the aqua trend line at the 1075 area and last weeks high at the 1063 level. Support is the dotted and solid blue lines at the 1020 to 1040 level. As long as we remain above the 1015 area, the trend is up. As long as we remain above the 980ish area, the uptrend that began in May remains intact.
Bottom line: A new high this week above 1080 would add a lot of credibility that this move is an medium term breakout and not a fake out. There is a short term pullback under way and the potential for this pullback to last to midweek is fairly good. See the daily updates during the week for specifics. We think the range potential for the week is 1020 or 1040 on the downside and 1060 to 1080 on the upside. The potential to be in a tight range of 1040 -1065 for the week is also viable as this week might be a consolidation week after the huge gains of last week. This is what the odds favor but since we are in breakout potential mode the moves could be as high as the upper aqua channel line with spike probes that might reach the 1080 level. Should October mirror September, it would suggest that the October highs are already in place for the month and a choppy time remains into months end. We favor this scenario at this point. In sum, the uptrend is intact and a backing and filling week is suggested after such a big move last week. Look to the ranges we listed in this update. May you prosper this week......... William ------------------------------------------------------------------------------------------
OCTOBER 3, 2009 Let's look at the key areas from last weeks update. "Support is the 975-984 area" (the low was 987) "Resistance is the 998-1010 area.........and 1022 - 1028. (we favor the 998-1010 area as most likely)" (the high was 1008.80) "The coming week will either be a selloff week or a transition one where gold tries to regain its footing. If its a transition one, we should see gold trade in a 980-1010 range." (actual 1008-987) Odds favor a test of the 960-975 area............ (the low was 987. We were a bit too bearish on our downside, only getting within 12 dollars of the range target) When all was said and done last week, it basically turned out to be a neutral week closing above 1000 for the weekly close, but still within the range we've been in for most of SEPTEMBER. Although we held our MAJOR SHORT TERM SUPPORT AREA (980-990), we actually expected that we were going to break the 980 level on an intraday basis. So over all we were looking more for a sideways to lower week, and in effect, we ended up with a sideways to HIGHER week missing the mark on the downside. The Monday morning Bloomberg lead news is that "commodities have come up too far too fast".......... as the media attempt now is to talk down commodities as much as possible. The "boyz" know that the seasonal factors for commodities are now entering a WEAK PERIOD for copper, crude, and some of the grains. Interestingly, this comes at a time when gold is near a major breakout, but also when the timeframe (October) for gold and silver POINTS DOWN. Now this is on average when this fall pullback occurs. DURING A STRONG MARKET................gold rallies into November and sometimes even December before a pullback occurs. A great view of this can be seen if you scroll down this page just a little ways and check out the weekly gold chart shown there. Look at 2007 hold gold rallied all the way to WEEK 1 NOVEMBER before a correction took place. At Goldtrends, although we make price projection potentials for gold, readers know that we FOLLOW price to where it goes rather than try and predict where it goes. Yes, we will have opinions of price and time, but our goal is FOLLOWING the trend. Now the 2007 rally is an example of an IMPULSE move. A real bull leg. A VERY STRONG MARKET. In a NORMAL market, the chart below shows what we usually get in gold.
The date at the bottom of this chart shows that in a normal market, gold usually peaks this coming week and then corrects a good chunk into the end of October. November is choppy and December begins a rally that usually lasts until February. SO FAR THIS YEAR GOLD HAS BEEN FOLLOWING THIS SEASONAL TREND VERY CLOSELY. This would suggest a PEAK THIS WEEK and the beginning of a 4-8 week pullback/correction etc. What should we make of this and how can we judge whether gold is going to peak this week or perform like 2007? The MONTHLY REPORT is dedicated to this exact subject and gives the 8 things to LOOK for if this rally is for real (click on MONTHLY button at upper left of this webpage to view). We will be monitoring this on the daily update. From a technical perspective, there are many commodities besides gold that are at key areas as well and as we have suggested above, some are due to turn down. COPPER AND CRUDE OIL USUALLY BEGIN TO DRIFT LOWER INTO YEAR END at this time. Crude oil is sitting right at its SHORT AND MEDIUM TERM MOVING AVERAGES (see MONTHLY report) It is also important to keep an eye on the US DOLLAR. There are some divergences showing up on the technical's, and with less that 5% dollar bulls, the theater has a lot of bears near the exit doors in case should anyone throw in a match. As long as we hold the 75-75.50 area, and just move above 76.25-76.50, we would be penetrating a steep downtrend line on the chart. So we should know soon. A drop to the 69-70 area would be the next stop should we penetrate 75. That type of move would put gold above 1100 if not more. So watch the dollar. The support and resistance is very close by, putting the USD in a small box. Whichever way she comes out should provide the next move. If its the upside, beware, as currency trends are the longest trending commodities. A KEY COMPONENT DEVELOPING IS GOLD'S RESISTANCE TO DROPPING WHILE THE STOCK MARKET IS. Each time the Dow drops, gold drops too.........BUT IT COMES ROARING back each time it hits short term resistance. Should we see GOLD DETACH...........LOOK OUT. The upside will be swift. Resistance for the week is the 1008-1014 area and then the 1022-1028 zone. Should we rally strongly the market has KEY OVERHEAD RESISTANCE AT THE 1033-1040 AREA. (We favor this area should we move above the solid blue channel line on the chart expecting a rally to the dotted blue channel line). Support is the 980-990 area. Keep your eyes on these other commodities listed above also. We think things will be quiet until London opens up and even then, with the whip-saw pistol whipping price range of Friday, we may remain quite as traders look to see which side will step up first this week. Interestingly the solid blue channel line points to the 1033-1035 area, the PRICE ZONE that is the all time high.
BOTTOM LINE FOR THE TREND: AS LONG AS WE HOLD THE GOLD HORIZONTAL support area and or the AQUA blue channel line at the 975-980 area, THE TREND REMAINS UP. We can see that we've held the 985ish area ON FOUR different occasions recently, and the last on FRIDAY hit the RED CHANNEL LINE and a small blue line shelf support area and held pierced that area for about 30 seconds....and then quickly reversed and rallied 20 dollars !!!!!. This suggests strong support. As long as we are above 975-980........the trend is up. A break of that area should it develop will be covered on the daily reports. ANY MOVE ABOVE THE SOLID BLUE LINE ABOVE THE 1014ish area (allow a few bucks penetration) would tilt the odds for a rally towards the 1030-1040 area. ABOVE 1014 and odds favor higher. Failure to move above the 1014 area suggests neutral week, and finally anytime we move below 996 this week and the odds quickly shift to the bears. OVERALL --------as long as we are above 980 stay with it. Rallies should be scrutinized to show some of the 8 points we laid out in the monthly report. Trader Tactics: Bulls will probably look to buy the Support areas that have been established at the 980-990 area with stops below 970. For those who feel the low is in and that this is a rally week the 995-1001 area seems likely with an outlook for the 1014, 1022 or 1040 area. For breakout buyers, a move above the SOLID blue line at 1015 area should prompt a move to 1040ish. Bears will probably look to short 1014 area with stops above 1028.....or for the risk taking bear, the 1033-1040 area with a stop at around 1045. MEDIUM TERM INVESTORS AND HEDGE FUNDS could move in above 1014 and 1022 and that's what would prompt a rally towards 1040. Should we GET THE RALLY THIS WEEK to 1040, it will be very important to watch volumes and velocity of the move so as to gauge the potential strength and duration of the move. Medium term investors are HOLDING as the trend remains up and should not be concerned as long as we are above the BLUE moving average below. Bottom line: Odds suggest that the next two week trend is about to develop in the next few days and this congestion area should come to an end. A break of last weeks lows an 980 will favor the downside, and a move above the 1014 -1016 area would suggest a move towards the 1040 area. Watch the dollar, watch the stock market ------if the STOCK market is selling off and GOLD BEGINS TO RALLY AGAIN it will be further evidence that GOLD is detaching from the market. THE GOLD MARKET IS AT A KEY ---VERY KEY MEDIUM TERM POSITION. In fact, the most important area of its HISTORY IS RIGHT HERE AT THE 1000 area. The weekly chart below speaks for itself and is fully explained in our monthly update (CLICK MONTHLY BUTTON). Continue observing what happened in 2007 when the dotted trend line was exceeded. If it happens here..........WE should expect the same type of pattern to occur.
Watch the ACTION HERE AT THE DOTTED LINE.
Watch here for %R to stay above the 80 area.
MACD HISTOGRAM NEEDS A HIGHER BAR THIS WEEK. This one needs to be watched carefully. ANOTHER LOWER bar this week on a rally will warn that something is fishy.
May you all prosper this week............. William ============================================= |
China urges citizens to buy gold