Saturday, October 8, 2011

GOLD AT A MAJOR CROSSROADS

I think next week will mark a major turning point in the gold market. Depending on whether the dollar continues higher or turns back down we will either see a resumption of the D-Wave decline or this will just turn into a normal run-of-the-mill intermediate degree correction followed by another leg up in this 2 1/2 year C-wave advance.

First the pros:

The COT report has now reached a maximum bullish level on the commercial contracts. In the past this has always marked major bottom turning points.



Sentiment & breadth have reached extreme bearish levels (contrary indicator).


Chart courtesy of sentimentrader.com

It's possible that gold has formed a small T-1 continuation pattern (A move followed by a sideways range often precedes another move of almost equal extent in the same direction as the original move. Generally, when the second move from the sideways range has run its course, a counter move approaching the sideways range may be expected.)
 
 
There is a small problem with this interpretation as the second leg of a T-1 pattern is generally slightly smaller than the first leg.

The cons:
The current intermediate cycle is too short. Barring a shortened cycle, which does occur rarely, there should be one more leg down into the normal timing band for an intermediate degree cycle bottom (20-25 weeks).
 
 
Also the HUI mining index is potentially forming a megaphone topping pattern. If gold does have one more move down into a true D-Wave bottom then the bounce off the lower trend line should fail followed by one more aggressive move lower.


Also there is a much larger T-1 pattern in play that fits the normal parameters much better than the smaller version.


You can see from the chart above that unlike the smaller T-1 the larger version does feature a second leg slightly smaller than the first, and if this pattern is playing out then we need one more move lower to test the midpoint consolidation zone.

Right now the battle is being fought at the $1600 level. So far every time gold reaches that level buyers step in. 


If however gold closes below $1600 that would be a serious warning sign that the current daily cycle will be left translated and that gold is indeed caught in a true D-Wave decline. If that's the case it still needs to test the consolidation zone of the large T-1 pattern and the intermediate degree cycle will bottom in the normal timing band (November). If this scenario unfolds then we can look for an A-wave advance to begin once that final D-Wave bottom is in place.

As I have noted before A-waves usually test but fail to exceed the prior C wave top. They are almost always followed by a lengthy 1-1 1/2 year consolidation before the next leg up can begin.
 
 
In my opinion next week is going to be critical. Either the current daily cycle is going to break down below $1600 in a left translated manner, in which case we will probably see gold continue sharply lower to test the 75 week moving average and the consolidation zone of the large T-1 pattern. Or if gold can gain some traction and breakout of the recent trading range to the upside then the smaller T-1 pattern comes in to play and we should see gold make another run at $2000.

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24 comments:

  1. I have no argument with any of your interpretations of the recent chart data. Both pro and con have evidence to back up each opinion.

    However, all this data took place apart from the presence of a new (and huge) exogenous event - Europe puking its financial guts out.

    I feel this makes a lot of the past chart action irrelevant. In my heart I still love gold, but my mind is telling me that the dollar is going to be looked at as a safe haven (as incredible as that may seem). this is gold-bearish in the short term.

    We have to remember that as capital slides down Exter's pyramid, it must pass through the level known as CASH before getting to gold.

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  2. Sir:

    Ten days ago, you said gold may drop to $1300-$1400 level.

    Today, you told us gold price may broken down to $1480 level, or move to the upside to $2000.

    Which means you will be all correct whatever gold price will be down or up next week.

    As you know, most gold investors are not daytrader, they only want to hear analysts' opinions about the moving trend, it is very difficulty to catch a 10% down or up opportunities even for the professional brokers.

    If I do believe your analysis ten days ago, I should sold off all of my gold holdings immediately.

    Gold price was unchanged in the past ten days after I sold, then today, you suddenly told me the gold price may reached $2000 soon, what should I do next monday?

    I think an analyst should insist your mid-term viewpoint firmly whatever you are a gold bull or bear until you do believe the gold's foundemantal has been reached a turning points; otherwise your readers will be fell really confused.

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  3. Sir:

    Ten days ago, you said gold may drop to $1300-$1400 level.

    Today, you told us gold price may broken down to $1480 level, or move to the upside to $2000.

    Which means you will be all correct whatever gold price will be down or up next week.

    As you know, most gold investors are not daytrader, they only want to hear analysts' opinions about the moving trend, it is very difficulty to catch a 10% down or up opportunities even for the professional brokers.

    If I do believe your analysis ten days ago, I should sold off all of my gold holdings immediately.

    Gold price was unchanged in the past ten days after I sold, then today, you suddenly told me the gold price may reached $2000 soon, what should I do next monday?

    I think an analyst should insist your mid-term viewpoint firmly whatever you are a gold bull or bear until you do believe the gold's foundemantal has been reached a turning points; otherwise your readers will be fell really confused.

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  4. Like I said in the article gold is at a crossroads. If the dollar breaks down then gold is going higher from here and the D-wave has been aborted.

    If the dollar continues to rally then gold will probably continue to decline until a true D-wave bottom is achieved.

    If I had a crystal ball I could tell you before hand which way the dollar is going to break, unfortunately mine is broken at the moment so I will just have to wait and see what transpires in real time like everyone else.

    The fact is that we are now in a bear market. In bear markets conditions can change in the blink of an eye. We saw that on Friday when Fitch downgraded Spain and Italy. It reversed the decline in the dollar which consequently put pressure on all asset classes.

    Bear markets are about deteriorating fundamentals and the governments attempt to abort the cleansing process. It makes for a very volatile trading environment. If one is going to make money in those kind of conditions they have to be able to do a 180 degree turn at a moments notice.

    The days of just buying dips is gone and won't return until the next 4 year cycle low. Unfortunately those are the conditions we are going to have to operate under for the next 12 or so months.

    We are now going to be in a dogfight for every little profit for the next year.

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  5. BTW you need to get a subscription so you can get up to date analysis as the market is continually evolving. You are never going to make money by just reading the free blog posts.

    The fundamentals can change in the blink of an eye and completely scrap current expectations. When conditions change then my analysis changes with them. I don't always post a new article to take into account adaptation to new information. I do that in the nightly reports.

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  6. Thanks for your respond, sir.

    On Oct.1, your "forecasting chart" showed us a very bear picture for the stock market, you were predicted the SPX may fell to 500 in the next two years.

    Three days late On Oct.4, you are changing your viewpoint:"I think we probably just saw a major turning point today. One that should mark a bottom for at least a couple of months."

    Only in a ten days period of time, you gave us a prediction that gold price could fall to $1300, or up to $2000 per ounce.

    Whatever the Indexes or gold price, the big picture, or we say the fundamentals would not be changed in the coming two years based on the debt, deficit, euro countries' crisis, housing price decline, money print process, and higher unemployment problems.

    For the gold price, I think "The days of just buying dips is still exist because it may reached at $3000 per ounce in the next 2-3 years".

    I must give you a big credit that you were accurated to predict that gold price will fell soon on Sept.21. just few hours before the FED meeting result has been announced.

    Have a nice day.

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  7. "On Oct.1, your "forecasting chart" showed us a very bear picture for the stock market, you were predicted the SPX may fell to 500 in the next two years.

    Three days late On Oct.4, you are changing your viewpoint:"I think we probably just saw a major turning point today. One that should mark a bottom for at least a couple of months."

    The next four year cycle low is due in late 2012. Bear markets always have bear market rallies. We are probably due for one of those now. It doesn't mean the bear market is over.

    The article is very clear. gold is at a cross road. If the dollar reverse and continues down then this will just be a run of the mill intermediate degree correction. If it continues higher then I would expect the correction in gold to continue down to the 75 week moving average.

    Ian,
    You aren't going to be able to put together a successful trading strategy by follow the free posts. When conditions change you have to change with them. This is a bear market.

    Bear markets are very tough to make money in because conditions can change at the drop of a hat.

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  8. We are in the bear market indeed, but gold market is in the bull market despite there will be a lot of 'corrections' on the road.

    I like to see your SPX forecast to become reality because I only own the Short positions, gold, silver, and precious metal related investment, I'm not such care short term violent fluctuations about gold price, I have been familar with this violent gold market in the past 6 years.

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  10. Yep, U calling it as it is, without any real conviction (ie.each way bet). Still you dont want to enter into the manipulation and engineering of markets !!!
    Timing and coincidence of market correction , USD rally, EUR fall, PM's down.
    Unusually low levels on COT indeed esp. LCNS let alone tot open positions on both AG and AU !!!
    This is nothing short of the players (smart money) looking for an opportunity to cover their shorts ahead of the CFTC "position limit" meeting on Oct 18.
    Your analysis may give credence to the current dilemma of the market...doesnt know which way to go.....ultimately the comm's and mm's will dictate that. Wise to wait and see which way they go first before rushing in and calling a play....Hmmmmm!! in any direction.

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  11. Almost all commercial traders, are regression to the mean strategists. That means as any asset class gets stretched far above the 200 day moving average they start to add more and more shorts. Once the asset regresses back to the mean they cover those shorts. It's one of the most successful trading strategies ever invented, except it takes deep pockets.

    If the government or the Fed was really trying to manipulate the price of silver then instead of covering those shorts when silver dropped they would massively add to them in order to accelerate and intensify the decline.

    This is why none of the manipulation nonsense makes sense. What you are seeing in the gold and silver market is just the way a normal secular bull market acts and the way normal commercial traders trade.

    Certainly there is short-term manipulation, especially around options expiration, or if a large trader is trying to get into a position they may short heavily to try and push silver or gold below a key technical level and trigger stops. But there is short-term manipulation in every market, it doesn't affect the secular trend.

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  12. The $HUI is lagging a great percentage in the past four years, most analysts included Sprott managers are conside the main reason is munipulation.

    Larry Fink, CEO of BlackRock said on September.16:

    "Gold Miners Are Still Priced At $800 An Ounce"

    http://www.forbes.com/sites/steveschaefer/2011/09/16/blackrocks-fink-gold-miners-are-still-priced-at-800-an-ounce/

    Gary, what's your opinon?

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  13. That's just silly. How could someone manipulate all of the mining stocks and why would they want to?

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  14. I have been in since 2005 and seen all kinds of extraordinary moves in gold price, some due to technical factors, but many dips seem to correlate more with disinformation and orchestrated selling campaigns.

    Absolutely nothing has changed in the fundamentals, which are propelling gold upward for the foreseeable future. If anything, conditions have gotten worse, contributing to further acceleration in gold price.

    It is laughable that the USD would be considered any kind of a "safe haven," when the economy is in a shambles and fiscal & monetary policies are disasters.

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  15. I have been in since 2005 and seen all kinds of extraordinary moves in gold price, some due to technical factors, but many dips seem to correlate more with disinformation and orchestrated selling campaigns.

    Absolutely nothing has changed in the fundamentals, which are propelling gold upward for the foreseeable future. If anything, conditions have gotten worse, contributing to further acceleration in gold price.

    It is laughable that the USD would be considered any kind of a "safe haven," when the economy is in a shambles and fiscal & monetary policies are disasters.

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  16. Gary: No one needs to "manipulate all the mining stocks." All they need to do is play with the gold prices, COT and let FUD (Fear, Uncertainty and Doubt) do the rest. Maybe tweak a couple of good gold stocks for good measure.

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  17. Do you really believe that?

    Why would they remove all those shorts once price dropped? That doesn't make sense does it?

    If they really were trying to manipulate price lower they would be piling on the shorts now that they got the metals going in the direction they want.

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  18. Gray:

    BlackRock's assets under management is total US$3.66 trillion, the biggest fund in the USA. BlackRock is also owns two biggest gold mutual funds in the world.

    http://www.trustnet.com/Factsheets/Factsheet.aspx?fundCode=CPGG&univ=U

    http://www.blackrock.com.hk/content/groups/hongkongsite/documents/literature/blk045048.pdf

    The CEO of BlackRock said on the interview last month "Gold Miners Are Still Priced At $800 An Ounce", we agree his comments because nearly all the senior gold stocks' prices currently are lower where they were three and half years ago.

    ABX is one of my big holding which I bought 3.5 years ago at $50 per share with a pe ratio at 29, gold price was $950 per ounce at that time.

    As today, the gold price is $1650 per ounce, abx's net profit was tripled in the past three years, but its stock price now is trading at $47.50 per share with a pe ratio at 11.

    Munipulation is the only reason.

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  19. Just because you think the market should value miners higher doesn't mean it has to happen or that it has to happen today.

    I heard the same thing repeatedly about silver last year. My response was to be patient.

    It wasn't long after that that silver began it's climb to $50.

    Just because the market isn't ready to agree with your valuation models doesn't prove manipulation. Just be patient, eventually liquidity always flows into undervalued assets. Miners are undervalued right now. Instead of whining about manipulation thank your lucky stars that the market is giving you an incredible buying opportunity.

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  20. I love conspiracy theories and am very prone to believing them.
    Is the gold market being massively manipulated?
    Not a chance!
    That being said, Gold ETFs have made a huge difference in the demand for gold from speculators.
    Good calls Gary.

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  21. Ian,
    I rarely say this to anyone. But you are retarded.
    I bought a stock 10 years ago, the price was $64 and the PE was around 34. 10 years later the price is the same and the earnings have gone up to $5.50 a share pushing the pe to round 12. Manipulation is the only reason.
    The stock BTW, which I never bought but stated here for you conspiracy fools, is JNJ. Yes the Fed wants lower stock prices for Johnson and Johnson.

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  22. Gary,

    So you do agree there is manipulation in the ST. Not just around options expiration though...I can think of a few others too...CME margin hikes, coordinated disinformation, interest rates, bailouts, Fed action/inaction, anticipation of CFTC action in position limits (since Jan) .....JPM....silver shorts for eg.
    If these guys can move the markets around and play them to make their dough, what makes you think the action in AG and AU cant be replicated in miners. After all the "ultimate play" is in miners. Where else can you buy AU for $8-900 oz and not risk it being confiscated. Besides it doesnt need to be direct involvement. The trashing of the miners of late is a factor of downward pressure from PM movements and lack of confidence. Failed attempts...my rear end. They didnt want it to happen....The rush to PM's and miners will begin in earnest when the printing presses are turned on full in both US and EUR.
    MMMMMMM...I love that smell of freshly printed notes. But I prefer the weight of shiny metal.

    Oh btw..."why would they remove all those shorts".....you ask.
    1) CFTC - position limits 18 Oct
    says its time to get out of Dodd.
    2) The name of the game is to make money...price goes up ...you short...as it extends way beyond mean...you take out exponential shorts....wait for price to drop...cover shorts...rinse and reset the process. You damn right its one of the most successful strategies. Its played by the same guys who have the deep pockets.
    They dont take shorts on falling prices...why would you ? Wouldnt the play there be long on falling prices ? No the idea is to push the markets in the direction which they can make the most $$$$$.
    Just mo.

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  23. add the word "Ahead" of Dodd to previous post.

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