Gold Tests Its Reversal Level: Third Time's the Charm 19 comments
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It took many years of study and analysis -- and untold hours of staring at market fractal patterns -- before I had one of those special "eureka" moments about the way markets behave at critical reversal points.
Although it's easy to lose sight of this, the main goal of any speculative endeavor is to figure out the point with the maximum potential return on capital, combined with the minimum potential risk to that capital.
In my opinion, the point where there is the highest reward, with the lowest risk, is the third test of an important reversal level.
Gold is undergoing just such a critical third test right now, and it's doing that just above the massive $675 energy level that defined the whole last phase of the bull market.
The upside is enormous from here, while the downside can be kept well under control, as a definitive breakdown to new closing lows would not be good in this situation, and would require immediate action to close down positions.
Furthermore, the fractal dimension on the daily gold chart is at a very-high reading of 65, which is telling us that there is enormous energy available to power a very big trend.
This is about as good as it gets for a long set-up in gold.
Subscribers to the daily Fractal Gold Report are positioned well, as we took profits up at $920 right before the last plunge, and we again just took some quick profits before this latest decline, playing the short-term patterns while this bigger opportunity is developing.
Right now is the time to get back into gold for the next major rally phase. It should be starting at any moment.
Please follow this link for more information on the Fractal Gold Report.
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This article has 19 comments:
The key, like bluesmoke says, is to hold a certain percentage of your portfolio in metals. Unfortunately, not everyone understands why they need to do this and that is why we keep repeating ourselves...
Having already positioned myself for a rally I am glad to see your data supports my prior conclusions. Let's hope the market proves us right. It will be interesting to see whether this leg up breaks out to new highs or not.
I see something entirely different from the above graphs: a descending H&S and a highly overbought condition.
As Gold rises, gold shares drop? I don't view this positively.
Out of curiousity my question is??? Gold is always stated as a hedge against inflation. Is gold really a hedge against a de-valued currency?
The only chance for inflation appears to be ..... a de-valued dollar driving up commodities faster than a drop in commodity demand. Nobody is predicting an economic boom right now. And unless flooding dollars causes immediate demand...... what inflation?
There are two paths to a devalued dollar:
1) All the newly printed money works its way through the economy and bids up the general price level.
2) Foreigner creditors sell their dollar reserves by the bucketful in a race to get out before it becomes nearly worthless.
Possibility #2 could begin as soon as this weekend's coming G20 meeting. (Not highly likely, but possible).
If everyone tries to sell the dollars they hold and few want to buy them, the dollar will devalue very quickly. If the dollar is dethroned as the reserve currency the only other world wide flight to safety is gold.
Dont' get caught up in the short term action. Look at a longer term gold chart to "frame" what's happened recently:
www.kitco.com/charts/p...
$700 is a strong support area just above the top of the preceding up leg. The last up leg has retreated back down to this area and is basing for the next leg up.
Mr. Nichols is simply noting that such basing formations tend to test the lows several times before rebounding. If the low doesn't hold, then expect prices to go further down. While lower prices are possible, the odds favor a run up over the breakdown as I read things.
The dollar/gold correlation is not historically proven nor is Gold proven to be an inflationary hedge.
Hell, prior to gold's release from the Gold Standard, it was limited to $35 an oz., this is a 1970's phenom. Gold never had a chance to find its true value relative to the dollar or any other currency in a stable environment.
Meanwhile, the dollar replaced the Pound as the Reserve currency while Gold's price was still fixed. Prior to 1934, Gold's price was fixed at $20.67, in 1934 it went to $35 and 41 years later it rose for no other reason than the removal of the price fixing mechanism.
That it skyrocketed in a time of rising inflation doesn't mean it was forecasting inflation.
It has been a currency for thousands of years. It was priced by various countries at various prices. Roman Gold was almost pure, to finance their wars they started putting less gold in their coins, did they have inflation because of it? I don't know. It devalued their currency but since the size of the Empire increased, and the goods of the acquired streamed in, did it create inflation in Rome? I do not have a clue.
Since it was introduced, the Dollar's value is 3% of what it was, I've seen that somewhere recently. Relative to the initial price fix of $20.67 and then $35 we have gold around $700 to $1100. 33 times each, in dollars.
This is Gold the Currency and what it would be against the dollar as a currency. Since nothing is bought or sold in gold, Gold the inflation hedge is only in the minds of the people expecting Armageddon, when gold is the only currency. IMHO
Right on. Gold wasn't just something some guy decided should be money. It evolved into money via thousands of years of individual interactions in the market eventually deciding that it was the best suited material to serve as money. That happened thousands of years before anybody got an Ivy League degree in monetary theory.
BTW. You can find numbers for loss of purchasing power via the Bureau of Labor Statistics Inflation Calculator found here:
www.bls.gov/data/infla...
triple resistance aside, this next month has all the makings of an interesting month in the gold sphere.
--ikk
Saudi Arabians have bought $3.5bn of gold in the past two weeks and seem a bit ahead of the pack on this one - of course when you spot a good trend it has already started, they are in buying big time.
The issue with gold is it is just another repository of value, just like any other currency. It's all in the collective mind of the masses. We define gold by it's ability to hold value. If Iceland had held just 20% of its GDP in gold since 2000, they would never have gone bankrupt. This is the real power of gold. The Kronos is still a currency, just no one wants it now, for whatever reason. You do not think Iceland has oil and gold and gas and enough natural resources to pay off their debt? Look at they're size, compare it to any other country and then look at they're population. Personally, if i wasn't betting on gold, i would be buying kronos out the wazoo.
Like i say, it's not the gold, it's what we percieve in it.
On Nov 14 04:18 PM paultaut wrote:
> You hit them right between the eyes with that comment.
>
> The dollar/gold correlation is not historically proven nor is Gold
> proven to be an inflationary hedge.
>
> Hell, prior to gold's release from the Gold Standard, it was limited
> to $35 an oz., this is a 1970's phenom. Gold never had a chance to
> find its true value relative to the dollar or any other currency
> in a stable environment.
>
> Meanwhile, the dollar replaced the Pound as the Reserve currency
> while Gold's price was still fixed. Prior to 1934, Gold's price was
> fixed at $20.67, in 1934 it went to $35 and 41 years later it rose
> for no other reason than the removal of the price fixing mechanism.
>
>
> That it skyrocketed in a time of rising inflation doesn't mean it
> was forecasting inflation.
>
> It has been a currency for thousands of years. It was priced by various
> countries at various prices. Roman Gold was almost pure, to finance
> their wars they started putting less gold in their coins, did they
> have inflation because of it? I don't know. It devalued their currency
> but since the size of the Empire increased, and the goods of the
> acquired streamed in, did it create inflation in Rome? I do not have
> a clue.
>
> Since it was introduced, the Dollar's value is 3% of what it was,
> I've seen that somewhere recently. Relative to the initial price
> fix of $20.67 and then $35 we have gold around $700 to $1100. 33
> times each, in dollars.
>
> This is Gold the Currency and what it would be against the dollar
> as a currency. Since nothing is bought or sold in gold, Gold the
> inflation hedge is only in the minds of the people expecting Armageddon,
> when gold is the only currency. IMHO
Gold used to have a seasonality factor, what happens if Holiday sales go totally in the dumpster?
Gold jumps over $50/oz closing around $800. Up about 7.3% in one day.
Looks like Mr. Nichols wasn't too far off base for a near term move.
My GLD call options did quite nicely by nearly doubling. It's a good way to start the weekend. :-)