26/09/2009 by Philinje.

This week we had the Fed meeting notes on Wed and the G20 summit. All of which should have been good news for the economy and bad news for the dollar. But instead it feels like the market was waiting for these events to be done and then piled onto a dollar reversal - up.

Most other currencies are looking like they topped. The most ambiguous is the Euro, which is oscillating below recent highs.  It’s possible this week the dollar will ease off a bit from its last up move, but the odds are increasing that a dollar rally has started.

So for those trading gold, this week may be the last chance to sell what you want to sell at a price near the high. If gold climbs again to the low $1000’s and collapses in early October, it looks like we’ll see a test of the $960 level. Then let’s see if that holds. As discussed previously, you might consider a stop or several stops under that level, giving it a generous margin for overshooting, as gold often does.

There are likely a lot of stops at or slightly below $960 so we will see the Comex pit traders trying to gun for those.  That should cause a sharp decline, easily to $940. Then if gold can get quickly back above $960, we might be ok. Otherwise, look out below.

Ron Rosen is still firm in his conviction that a C leg is starting soon or has started already and will finish at slightly below $680 at about this time next year, possibly as early as end of July. If that scenario unfolds, there will be lots of pain everywhere in the markets, as it could be accompanied by a new low in equities.

However, there are no guarantees in this business. We just have to see what happens and be prepared to act when the time is right. And right now is the time to sell into strength. Holding core positions is no problem but keep stops on positions that were entered at a level near $900. Holding physical gold is a good idea always, but keep in mind that if we get the C leg down there will be a great opportunity to buy more, so keep in mind you will want some cash if that happens.

After the C leg down gold should embark on the major Wave 5 up which will include the parabolic, blow-off top. So if you can hold on a few years you don’t need to worry about buying anywhere under $1000. Your personal circumstances will dictate what you should do.

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23/09/2009 by Philinje.

Gold has held $1000 for several days, a very bullish sign. Some are saying this means $1000 will become support and it’s onwards and upwards from here.

The dollar can’t seem to get a rally underway and now that it is down to 76, gold has cruised straight back to its high territory around $1010-20. And the commerical traders have increased their short position to the highest level ever.

So it’s time to be cautious. The dollar will almost certainly rally to some degree, and gold will likely test the apex of the triangle at around $960. Delta timing shows a long-term high for the dollar in December-January, but long-term timing points for the dollar are relatively frequent.

Rosen thinks a correction in gold will last for the next year, starting now until next Sep-Oct. If instead gold powers higher in October, that is a valuable clue that maybe the C leg down won’t happen.

Clive Maund has updated his views somewhat and talks about the apex of the triangle:

http://www.gold-eagle.com/editorials_08/maund091909.html

Significantly, he is now talking about a breakdown below the apex as an important sign. Of course that may never come to pass but he hasn’t expressed that concern before.

Now what would cause a decline in gold for a year? Maybe another bout of deflation rearing its ugly head? Yet there are people talking about the strongest economic recovery in history and there is an exceedingly bullish sentiment in equities. This could be a red flag from a contrarian point of view, but this market seems dangerous to short.

The following article lends some nice perspective to the current state of the markets:

http://www.gold-eagle.com/editorials_08/lerner092009.html

The author points out that one year ago the markets were practically in a panic at a level higher than the current one. Then of course the real panic happened. The charts in that article are a good read of the dumb money, smart money and other indicators. Basically, there is a lot speculative froth currently, the smart money is neutral and insiders are selling in force.

Well, early October is the first point at which to attempt a stab at what happens next, and then we’ll see. A breakdown below the apex at $960 will be the thing to watch for, and then to see if that isn’t a fake breakdown, meaning the price shoots back up in short order. Until then, be cautious, take some money off the table, and make sure you are ok with a sizable correction.

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16/09/2009 by Philinje.

It’s tough to remain objective in the best of cases, but in this case both sides seem to be equally plausible.

Rosen remains firm in his belief a major correction needs to be finished with a wave C down. He has pointed out various facts to support this and quite recently talked about the previous bull move in gold, from the early 70’s to 1980 when the big spike up ended at $850.

From early 1975 to late 1976, gold eeked out an expanded flat correction as its wave 4. Rosen thinks we are in the wave 4 now and a regular flat correction seems to be unfolding. This means the current top will be in the vicinity of $1033 and the C leg will end at roughly $680.

From that bottom in 1976, gold zoomed up in its spectacular wave 5. So Rosen thinks the same will happen this time. We just have to hit the C wave bottom first.

He doesn’t really care about the reasons why gold should keep heading up to $1500 etc. He says all the time he doesn’t care about the why. But recently he added that all the good news has already been discounted by the market. It’s quite possible there is other news, as of yet unknown, that will appear in the future and do things to the market then. That’s a pretty good point, and quite practical.

The other side of the picture is in the following article, which outlines recent developments that support gold’s strength:

http://www.theaureport.com/pub/na/3037?utm_source=streamsend&utm_medium=email&utm_content=6132441&utm_campaign=The%20Gold%20Report%20%u2502%20Gianni%20Kovacevic%3A%20Pro-Copper%20Crowd%20Grows

Most people tracking gold are citing the facts that are nicely summarized in this article. And yes, it makes sense that for all these reasons, gold should stay above $1000 and keep moving up. But good reasons are not enough to make a market do what it wants to do.

It’s a tough call.

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12/09/2009 by Philinje.

I have read wildly opposing views from very respected advisors about the gold close on Friday. It looks like gold has broken through $1000. But is it a top or a sign of strength?

The dollar is sagging, but somehow it seems to be bottoming. Gold had a spike on Friday, which is characteristic of a top, but not a huge spike. We’ll see what happens early in the week.

Regarding the dollar, I recently read a report about a speculation that could make sense. The author thinks that 4 billionaires could gang up on the Euro to send it crashing. And he thinks it will happen before the next ECB meeting on Oct 7.

He makes the case that this has happened at numerous times in recent and older history. He names the 4, including of course George Soros, who took the credit for crashing the British pound about 10 years ago. One of the 4 is someone who probably also participated in that raid on the pound but remained quiet.

The economic basis of this view is that the economic reality in Europe is much worse than widely perceived at present, and the policies of the ECB deserve a good whacking by these modern-day barbarians. Soros became a billionaire in one day with his previous stunt.

Hmm, sounds plausible, doesn’t it?

One advisor, who is still bullish on gold and thinks the parabolic move is still in force, is convinced the economic recovery is the strongest ever in history based on leading indicators. He think the S&P will break through 1060 and keep going up for the next year or two.

On the other hand, here is an interesting summary of the flip side:

http://globaleconomicanalysis.blogspot.com/2009/09/five-points-on-markets-earnings-economy.html

I suspect there is a bit of truth in both views. It’s just a question of which side comes to the front at a given point in time. So far, the “green shoots” recovery view is widely held and driving markets higher. That could carry on for much longer than those who think the market is way too overbought are willing to believe.

But one piece of significant bad news could tip things the other way in a big hurry, as the market does seem overbought and there is a lot of skepticism out there about the “recovery.” The markets are driven by perception, and perception is very delicate these days.

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11/09/2009 by Philinje.

There has been a lot of talk about the “reverse” Head and Shoulders pattern in gold, in dollar terms.

One reason Ron Rosen is putting more weight on the C leg correction scenario is that he thinks the “reverse” H&S pattern is rubbish. That pattern would normally form at the bottom of a correction, indicating a likely reversal. Instead, this one has formed at the top of a major move up that topped in March 2008.

However, there is a version of the H&S that could possibly apply here, which is the continuation H&S. This typically forms during a move up as a kind of stalling pattern. As such, it tends to resemble a consolidation and is often flatter in shape. Sadly, this one is anything but flat. The first leg down that ended last October is quite steep - $1033 down to $681.

The pattern that Ron thinks applies in this situation is a regular flat or an extended flat correction. Both are ABC corrections and it’s clear we may be at the top of B right now or soon. If B goes above the beginning of A, meaning $1033, then an extended flat correction is more likely, which means C will end lower than A or below $680. Otherwise, if B stays around $1033 or lower, C may end at roughly the same level as A.

Wave counting is from the discipline of Elliot Wave, which is quite popular among technical analysts. However, EW is notoriously loose, meaning interpretations can vary a lot depending on someone’s bias or due to the phenomenon of “fitting the data to the theory.” I am not an expert on EW but what I have seen among those experts is a tendency to revise their views constantly as the market reality plays out.

Ron Rosen’s strength is that he uses Delta as a timing tool, which tends to be more solid than EW. Then to the degree appropriate he fits EW to Delta timing. He is one of the best gold analysts around because of this approach and also because he has been in the business more than 50 years. That’s why I pay attention to him.

The problem with Delta is at the beginning of a cycle, the turning points can invert, more than once. So the whole progression of highs and lows can be reversed. This is usualy not resolved until 1/3 or 1/2 way through a cycle. The longest time interval of Delta points is one or more years,  meaning a cycle of multiple years, and when gold topped in March 2008 the movement was difficult to fit against the first three long-term turning points. There is still some ambiguity.

The current prognosis is that we are topping right now or soon at a long-term turning point and then moving down into the next one, which theoretically would arrive next year. However, it is possible (though unusual) for the next long-term point to arrive very soon after the one before.

This is part of the reason that Ron has switched his stance to say that a major correction is still in process and a C leg down will form, either by early October or later. If we go below $830, in my opinion the correction will progress further and take longer. In fact, in that worst-case scenario the parabolic move will be delayed significantly.

So we’ll have to see. We could see a higher top in gold by end of September, but if it stalls at just above $1033, the longer C leg down comes into play.

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10/09/2009 by Philinje.

Gold has not broken through $1000 convincingly yet. And it is short-term overbought so there will likely be a correction soon.

It is possible gold will not undergo a severe correction, as in the C leg down that Ron Rosen has been warning about. Elliot Wave specialists have been going on and on about the C wave in the general market and gold for quite a few months, but it is possible they are wrong. That said, Ron Rosen is not a big Elliot Wave believer, so the fact that he is leaning in that direction is significant.

The thing to watch for here is how gold behaves when it re-traces to the break-out point, namely $960 or so. So far, there has been some exuberance about the triangle break-out to the upside, and that has caused a lot of people to jump in. But those same people could bail in a big hurry if gold goes below the break-out point.

The big commercial traders are probably going to do their best to scare these folks so they can make some money on their sizable short positions. And if the dollar rallies at all, they’ll have the perfect excuse.

But the dollar actually broke through key support at about 77.8 on the dollar Index, and is now hovering around 77. It is possible that is a fake-out to the downside, but so far doesn’t feel that way. We’ll have to watch its behavior closely in the coming days.

My guess is a lot of people are waiting for some bad news to hit the markets, like a big bank failure.  Then the markets would move down in a big way, while the dollar shoots up. Some people are saying gold would also go up this time, like it did in early 2008. Hard to say.

Gold is a safe haven, like short-term US Treasuries, but it got whacked by de-leveraging last October. Maybe most of the de-leveraging fuel has been used up, maybe not. Equities seem to have gotten pretty far in a short period so it would make sense for profit taking to set in. But with some bad news, it could turn into another panic, and then some degree of de-leveraging is probably inevitable.

On the other hand, we may be witnessing the early stages of the inflation bubble and things could just keep moving up. Then the dollar would continue to sink and the big commercial short position could result in an explosive upside move as they frantically cover, and gold could spike to $1300 or $1500 in a big hurry. That kind of spiky top is more typical of gold. There is a large ongoing short position among commercial traders that has been there for years, it’s just that lately it’s gotten quite large.

The commercial traders are not more right than anybody else. But they do have an advantage in terms of manipulating perceptions. Often the sharp drops in gold price are basically due to their manipulation on the floor of the Comex. The intention is to hit obvious stop levels so more selling gets triggered. We are very vulnerable to that kind of action right now. By the way, this is one reason that you should use non-obvious stop levels, and if you want to hold onto a position the stop should be below any obvious support level.

So for example, right now the $960 level is quite obvious. Does that mean you should use $950? Well, first of all it depends on your instrument. The GLD ETF is not exactly the same price as gold spot or futures, so you have to adjust based on that difference. Personally, I would go as low as $919 or so based on gold spot price. Also, try to use non-round numbers.

If prices dip below $960 and a bunch of stops are hit, the price could easily dip down to $930-40. Then the commercials could hammer prices again to cause a real panic and stops could get triggered at $900, causing a further dip. In this situation, a lot of stops may be resting below $900 because that has been the floor in the gold price for most of this year. So if it gets that low, there is potential for a nasty drop. Or maybe the drop will be milder than otherwise at that level because a lot of stops will have moved up to $960.

That’s the kind of thinking that goes into deciding on stop levels. Some positions are for short-term trading and generally stops will be tighter on those. But if you want to hold on through a semi-big decline, then maybe the $830 level is the one to watch. My sense is that below $830 we are looking at the C leg scenario and that might mean $650 or so ($680 would be more likely if the current top does not go higher than $1033 and a C leg unfolds).

But again, things may not pan out that way. I still feel early October will be the right time to evaluate the situation. And in the meantime, sell some now at this current top and see what happens. Jumping in because the price seems to be going higher is foolish. There will be a pull-back or consolidation.

Let’s keep an eye on $960. And of course if the dollar tanks and gold breaks $1000 convincingly, we need to re-evaluate.

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05/09/2009 by Philinje.

Lately I have become a devotee of Sovereign Man, a website that is basically a blog by someone who travels all over the world finding the best ways to make and protect wealth.

Here are two links that are worth checking out. The first is a free pdf about storing and transporting gold overseas. Here it is:

http://www.sovereignman.com/Move%20and%20store%20gold%20overseas.pdf

The second is a recommendation to move your IRA into a self-directed IRA and then to invest the funds in certain kinds of assets. Here it is:

http://www.sovereignman.com/finance/the-most-informative-23-minutes-of-2009/

Enjoy. While you’re there, feel free to sign up for the free email report. It’s almost always worth reading.

As far as the recent action in gold is concerned, no change on the outlook. We may get to $1005 or maybe higher, but on or before Sep 10, that’s Thursday, you may want to sell a bit and adjust stops. Then it’s wait and see until early October.

Yes, it’s possible gold will move higher than $1033, the all-time high from March 2008. It may not do it this time but soon. If it does, that could be the top of the B leg in an extended flat correction. So it still remains the case that we have to be cautious. The C leg down, if it happens, will likely go below the last low in October last year ($680).

Another scenario is gold could settle down to the break-out point at $960. Then resume its bullish trajectory. It could also go no lower than $800 and resume its bull move. One way to play this is to see if gold gets below $800, and if it does, look out below. The C leg may not end until early-mid next year.

We simply have to see how things play out.

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04/09/2009 by Philinje.

Sorry, in the last post I meant starting Tuesday, after Labor Day in the US, the traders are back to work.

Sep 10 is a cycle high date so selling a bit then or a day or two before might be a good idea.

I do not mean to sell everything you have. Sell some into strength, maybe up to 1/3 as Jim Sinclair recommends, in order to have some cash to buy more at lower prices. The question is, how low. Setting stops on some of your remaining investment is a good idea, but on your core investment, ideally in physical bullion and/or coins, hang on.

Two articles have been circulating today in various forms and I’ll reference them here just to keep current. China has been in the news a lot lately, regarding the recent decline in their equity market and a letter to several US financial institutions saying their State-Owned Enterprises will be allowed to default on derivative contracts, as well as the not insignificant news that China has purchased $50 billion of IMF bonds: http://moneynews.newsmax.com/financenews/china/2009/09/03/255910.html

The first article is related to the idea that China is divesting its dollars. But it also indicates that China is determined to see the price of gold rise, possibly as some kind of counter-measure to the severe shorting that takes place on the Comex in conjunction with low lease rates on gold, though lately the lease rates have been going up.

China pushes silver and gold investment to the masses

http://www.mineweb.co.za/mineweb/view/mineweb/en/page33?oid=88452&sn=Detail

“What appears to have happened in China is a total relaxation of strictures on holding precious metals by the individual with the government pushing gold and silver as an investment option, seemingly at every opportunity.  This is a far cry from the situation only a few years ago where the distribution of gold and silver was strictly controlled.  Now, the Thunder Road Report notes that every bank will sell gold and silver bullion bars in four different sizes to individuals and gold related investments are said to be soaring in popularity.”

The second article speculates that the Chinese action of reneging on derivative contracts will trigger a significant bank default in the US. The support of this view lies in the action in the markets over the past few days.

China and the Buzz of a Pending Bank Default

http://thefundamentalview.blogspot.com/2009/09/china-and-buzz-of-pending-bank-default_03.html

Lots of juicy bits in this one.

“Here’s a brief overview of what might happen should these companies, and others, default. The banks, namely Goldman Sachs, J.P. Morgan and from other accounts possibly Deutsche Bank will find themselves LONG on oil futures with no customers on the short side of the derivatives. This will most likely lead the banks to sell the excess oil futures without a care for the price. This is no different than what happened when Bear Stearns was forced to sell off their gold futures in March of 2008 which then resulted in a sharp downturn in the price of Gold.”

This time, oil would get whacked but this would have a carry-on effect with other commodities. More importantly, it would cause a panic and that could cause the dollar and bonds to rise sharply. Gold may rise too, but probably after some decline.

The point here is to keep your investments balanced and un-leveraged. You need to be not too surprised by whatever unfolds. And most important of all, you need to be able to sleep at night.

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03/09/2009 by Philinje.

Well, yesterday gold broke through the tight consolidation range, growing tighter into the apex of a triangle. This looks like a bullish signal and people are jumping in. Next Monday is a minor cycle turn date, or a major one in some models.

This could be a fake-out that gets within range of the February high at $1005.  Then a move down will start and it could rest back at $960 or so, the breakout point, before resuming higher, or we could get the more severe pullback that Ron Rosen seems convinced of.

One thing that is absolutely certain is that starting Monday, the summer holiday is over and professional traders will be back at work. This will probably result in some big movements in and of itself. For example, equities could be sold off just to take profits. And the Comex traders could really punish the latest round of gold suckers.

So, at this point selling a bit on Monday may not be a bad idea and just waiting until early October to see how things unfold is the safe bet.

To give you an idea of the variety of opinion out there on what might happen next, here are two articles that tell almost opposite stories. Both of them happen to have good news about gold, but after that the similarities end.

The first article, Flight to Safety Appears Imminent, speculates that the markets are suspecting a breakdown in the banking system, and that is what is holding up gold and bond prices. It also says the dollar will go up together with gold. All the logic and analysis in this article seems sound, and it fits with the scenario that more panic about the financial system is yet to come. Here it is:

http://www.gold-eagle.com/editorials_08/bloom083009.html

The second article, Nikkei Comparison Suggests S&P500 of 1400 by Year End, is based on research from Merrill Lynch Hong Kong that speculates the stock market will move up 40% by the end of this year to around 1400, and then a major decline will take the S&P down to 400 by 2013 -2014. This scenario seems strangely feasible, though the technical logic behind it is fairly abstract. Here it is:

http://www.gold-eagle.com/editorials_08/wilsonl090109.html

Take your pick. Both are not accounting for any near-term decline in gold.

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