29/10/2009 by Philinje.

Gold fell below $1030 as the dollar took its first step upward. As the dollar bounce eases off, let’s see what happens.

One scenario is the dollar stays above its recent low of 75 and gold stays below $1070. If things reverse from there, that will be the first confirmation of a dollar rally.

We might get some more weakness in the dollar in the near future, even if it rallies here decisively. The real dividing line is 71 on the dollar index.

At the moment, it seems unlikely that anything other than another market crash would give the dollar real strength. So that is the real signal. Opinions remain divided - most savvy commentators seem to lean toward the crash scenario, but a number of credible voices are saying the recovery is real and this is the beginning of an inflationary storm.

In any case, the S&P is bouncing around the 1060 level and lately has shown some weakness. Let’s see if it turns into a solid decline.

Personally, it seems the schizophrenic attitude is a reflection of the actions by the Fed to reflate the banks and stock market, while the average consumer is wallowing in rising unemployment and shifting toward a saving mentality. US Treasuries remain strong, which could be a warning sign. They will almost certainly collapse at some point, but maybe we get another panic first.

Early November is another turning point. The current bounce in gold could stop then. Technically, it could get to $1100 or so by end of year and still decline in a big way. But if a decline does not develop soon, there will be more evidence that the decline may not be so deep. And of course, there is always the possibility that gold could just take off from here and never look back.

We just need to watch the dollar.

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22/10/2009 by Philinje.

The dollar hit a wave 5 target low and rebounded slightly. This is a technical sign that it may have finally bottomed.

According to Delta the low is late, which is a sign that the downtrend is quite strong.

There is also good reason to believe $1070 or so may be the top in gold, but you can’t rule out another gasp up to $1100. The technical signs still say that the current move up may be lacking substance.

Anyway, if the dollar has bottomed, we can definitely expect some weakness in gold. Just how much is the question. At some point, if a market crisis develops, gold should benefit as a safe haven, and perception is growing that gold is a better safe haven than the dollar.

Let’s see if a move below $1040 develops, and then below $1000. And remember the tip of the triangle was at $960.

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17/10/2009 by Philinje.

There are some reasons to believe the dollar has bottomed at just above 75 and there are plenty of signs the current peak in gold is fragile. One of the main signs is declining volume.

Gold finished the week at just above $1050. That’s some reassurance that the rally isn’t over. In the C wave scenario, a B wave top could go above $1100, so there might be some further move up. But things are getting precarious up here.

Be cautious if you remain long. It could be a good idea to bring trailing stops up pretty close, like near $1030 (spot price). At this point it’s conceivable we could get a drop below $1040 and then make a stab at $1100, but a serious drop below $1040 could be a sign of trouble.

And it remains true we might get a test of $960. This recent move up could be a lot of speculative exuberance from the upward break of the triangle at $960. The dollar has remained weak but not that weak. 75 is still a distance from 71, the all-time low.

But so far, we seem to have a convincing break above $1050. It’s just that there is not much technical evidence that this move up has a lot of substance. Let’s keep an eye on the dollar, as that has reached the limit of a Delta long-term turning point low. The next long-term turning point is a high.

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08/10/2009 by Philinje.

Gold is holding over $1040 as of Tuesday, and it’s tempting to think the parabolic move will take off from here.

It might. But there are some negative signs.

First, a short-term high is due October 8. That’s today. The decline after a short-term high to the next short-term low may be minor, but anyway it’s worth keeping this in mind.

Second, October has been a bad month for gold, from a seasonal perspective. A typical pattern is a high in early October then a pretty severe decline.

Third, the HUI or mining stocks are not confirming the move in gold. This is definitely a bad sign. The HUI is still under its recent peak in September and is quite a way away from its all-time high (440-450 now vs. 520 in Mar 08).

Fourth, RSI has hit 80 and stochastics are still lower than they were at the peak in September. The first is a sign of a peak and the second is a non-confirmation of a high.

Fifth, and most importantly, the dollar is just bumping along at close to 76 on the dollar index. Remember, the all-time low is close to 71. So it certainly doesn’t seem like the dollar is collapsing just yet.

The recent bad news on the dollar is the news out of the UK about talks between China, Russia, the Middle East and various other countries about using a basket of currencies, not including the dollar, for oil. One more nail in the coffin. It’s no secret the Middle East is keen on gold as a currency.

Here is the article:

http://www.independent.co.uk/news/business/news/the-demise-of-the-dollar-1798175.html

Well, there has been endless bad news about the dollar, starting with the Federal budget deficit, but if you were China, would you want the value of your currency reserves to sink like a rock? China is actively buying things with its dollars - commodities, companies, gold, and it still has a lot to get rid of.

Finally, the other bad sign about the current high in gold is the strength in US Treasuries. This is a sign of deflation not inflation.

Equities are hanging in there, but it feels like they may be weakening. Some analysts are still gung ho on the market. It’s a tough call but maybe equities will hang in there a bit longer. October is also a bad month for them, and several market crashes have occurred in October.

There is a lot of good news priced into the market, so a little bad news could have a big effect. Recent unemployment figures were bad but things have recovered. What’s next? Commercial real estate loans causing another round of bank failures?

The point is, if markets crash that could usher in a bout of deflation. Perceived deflation, at any rate. That would be bad for gold, and especially for mining stocks and silver.

Rosen’s summary at present: the new all-time high means an extended flat correction may be in the cards, or it might still be a regular flat correction. In an extended flat correction, the B wave peaks above the top of the A wave, but then the C wave goes below the bottom of the A wave. Most analysts seem to think the critical level for gold is $1050, and anything in that vicinity is close enough to the previous all-time high around $1033.

If gold convincingly breaks $1050, it might be time to be less cautious. Regardless, there will be a pullback, as there always is, and it still seems like the critical level is $960, if and when we get there.

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04/10/2009 by Philinje.

Ron Rosen has been tracking two special facts about the month of September, and both have been confirmed as of Oct 1 and in fact today.

One is a non-confirmation in the HUI (Amex gold bugs index) where a high in the price is not matched by a high in the stochastics 4 months after an initial high - which happened 4 months ago (this non-confirmation happened twice before in the past few years, and a sharp correction ensued). The other is the Fibonacci number of months between highs and September was the month of a high. This is to be followed by several quarters of a correction.

He can see the A and B legs since March 2008 as lasting 3 quarters each so estimates the C leg will last 3 quarters, and the bottom will correspond with a long-term low as early as next July and as late as Jan 2011.

His new estimate of the low is just under $700, quite close to the previous low in October 08.

What would negate all this is a new all-time high in October. We are coming to a possible high on Oct 8 and that may be the last chance. Let’s see what happens.

Mining companies, like those in the HUI, and silver and silver mining companies are likely to drop to new lower lows based on the C leg scenario, because their corrections look like zig-zag movements, vs the flat correction for gold. Keep that in mind. Silver and mining companies are always volatile - both gave up roughly 70% or more last October from the high in Mar 08.

In the currency world, it looks like a dollar rally is starting, and according to Delta there is a long-term high in January. Delta also shows a long-term low in the S&P next April, give or take a few months.

The big picture seems to be based on a bout of deflation that will hit us soon and last for about a year. This will be painful. There are lots of good arguments about deflation vs. inflation, but lately it seems the deflation point of view is making more sense. The number one issue is there is still a lack of demand. People are unemployed and saving more, housing prices are still low, fewer loans are being granted, etc. All that money being manufactured by governments and central banks is not really hitting mainstream circulation.

There is one theory about how baby boomers have peaked and will decline going forward. Meaning that demand is now going downhill for a long time. That point of view seems a bit extreme but it’s interesting to note a larger macro trend that almost no one can see right now. Of course, counter to that trend in developed countries are the trends in China, India and the developing world.

So let’s see if we get deflation, then even more stimulus, then massive inflation. It would be an opportunity of a lifetime to invest in gold at the bottom of the C leg, should that come to pass.

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