Fed Says Buy Gold: The Start of a Bullish Pattern

On Tuesday we received direct confirmation from the Fed that the U.S. dollar will continue to be sacrificed to resuscitate ailing credit and asset markets. "Helicopter Ben" is finally living up to his advance billing, as dollars are set to rain down on the economy.

Gold markets got a huge burst of upside energy immediately following this surprisingly forthright Fed statement, and the long-anticipated move up to $875 is well underway. This is of course great news for our long positions, and it looks now like $875 will only be a temporary waypoint on the way back up to the all-time highs.

On a related note, the trading program for the Fractal Gold Report has captured the majority of the move up off the bottom, with our initial long position coming way back at $710. While many hedge funds and money managers have had a disastrous year, the program has not only come through this tough period unscathed, but is well into positive territory, and that includes all fees and commissions. (Past results are not necessarily indicative of future results. There is risk of loss in all trading.) Subscribers to the Fractal Gold Report are eligible for participation in the trading program if they meet the brokerage firm requirements.

As the New Year approaches, this is the perfect time to assess which methods have been successful during this historic market shake-out. As they say, it's easy to be a genius in a bull market. But the real "value-added" is most apparent during the turbulent periods.

My road-map for gold in 2008 called for a top around $1,010 in late March, followed by a lengthy and difficult corrective period which was likely to carry gold all the way back down to $730, which I subsequently adjusted to $675 as the correction was underway.

The actual high was $1,033 in late March. Then after a difficult six month corrective period, gold bottomed out at $681 in late October.

But the most important thing to notice on this monthly chart is how the correction has already accomplished its main job, which was to bring the monthly fractal dimension back over 55. This means that gold is again in position to rocket to the upside. A monthly trend in gold can carry prices up $400 or even $500. These are huge moves. There is still plenty of room to extend higher, even in the short-term.

The 150-minute fractal dimension has dropped quickly with this very strong breakout move, but it's only down to 41, so there should be more than enough energy left to take gold up to $875 on Wednesday.

At this point my plan is to take profits at $875 if the 150-minute fractal dimension is again down in the low 30s or high 20s as gold is stretching up to this target. As we just saw at $810, there is little risk of missing out on further upside in such a scenario, and it can greatly reduce risk, as we can side-step that period of time when gold is highly unlikely to make further upside progress, and is much more likely to correct back down.

But after this expected short-term correction off the $875 energy level, we will be looking to get right back in for the next phase of this very exciting bullish pattern.

As always, I will provide daily updates on gold in the Fractal Gold Report, and subscribers with the annual plan also receive the Fractal Silver Report.

Comments

[User 30121:]

Thank you David for the article! Please enlighten me on EXACTLY what Bernanke's said in his "direct confirmation" statement.

2008 Dec 18 08:38 AM

[Robert Nabloid:]

@User 30121: Bernake dropped the interest rate to zerosih... Actions speak louder than words! He just told us, with actions, he wanted the value of the dollar to go down, more people to borrow money, and more dollars to be created to stop any potential deflation with the use of inflation. Did you need Bernake to spell it out?


On Dec 18 08:38 AM User 30121 wrote:

> Thank you David for the article! Please enlighten me on EXACTLY what
> Bernanke's said in his "direct confirmation" statement.

2008 Dec 18 02:00 PM

[User 30121:]

Thank you Robert for taking the time to post. Yes, I knew of the 0-25 chop on interest rates, but the way the comment was phrased by David, I thought I may have missed some commentary that expanded on the rate slash. Thanks again.

2008 Dec 18 06:22 PM

[mauijeff:]

The US has turned it's back on the dollar. If the EU and other countries do the same, I believe that there will be even more world wide demand for the yellow stuff.

2008 Dec 19 06:24 AM

[Alan von Al...:]

Bananas?

2008 Dec 19 07:25 AM

[Ellen:]

Can you comment on what Jim Rogers said in a Bloomberg interview the other day, that gold will fall short term because the IMF is selling its gold?

2008 Dec 19 12:05 PM