Gold Breakdown 36 comments
January 15, 2009
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Gold completed it’s bearish pattern yesterday by breaking down out of a channel going back to October. The gold ETF (GLD) saw volume rise as did the volume on many individual gold stocks, which doesn’t bode well for this metal in the short term. While I don’t normally consider shorting gold stocks as I think they are going higher in the long term, I may make an exception as there seems to be a lot of downside potential here.
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This article has 36 comments:
Let's see.
I agree, the lines on the chart are not parallel, maybe we should chip in and get him some glasses and a ruler. LOL!!!!
However this is a short-term analysis. Fundamentally, deflation + flight to the US dollar means that its the USD which should continue to rise, while gold will fall. Only when the deflationary pressure subsides {who knows when the fed will stop printing money and bailing out the banks}, and the upward pressure inflation due to the flood of money starts that gold should start moving up.
Somewhat related article about the CitiGroup bailout I blogged about : aprioritrader.blogspot...
Technically, gold seems to be in a corrective 4th elliot wave, the next wave (5th) would be upwards : so this jibes well with the fundamental outlook I described in the paragraph above. (Yes, my bias is evident isnt it :) )
Few words of caution :
1> 5th wave failures are well known
2> Mild inflation post deflation would kill any potential big-upside move in gold.
Disclaimer :
1> long GLD
2> I am neither an investment advisor, nor a professional money manager. Take the above perspective with a fistful of salt :)
-KaranZ
AprioriTrader.blogspot...
"But never the less the majority of the world no longer sees gold as a hedge against anything."
You might want to read Adam Hamilton's piece, "Global Gold 5"
www.321gold.com/editor...
"But to understand how gold really did during late 2008's devastating stock panic, you really need to consider all these currencies concurrently. The takeaway is gold's panic performance ranged from excellent to spectacular in 7/10ths of these currencies which include the very important euro and British pound. Only the US, Japan, and China saw local-currency gold charts that looked weaker than investors hoped during the panic episode."
In much of the world, gold not only held all of its value, it hit all time highs at the end of 2008.
Short-term traders can short or long gold ETFs, etc, and do whatever they like to make some money. But as a wealth protection tool, physical gold has an indisputable role. We are argueing about different things.
Can anybody explain why physical gold market is so tight if not for preservation of wealth, or as an insurance? I store about 50% of mine in $. The rest are in some other currencies (which I believe won't be destroyed in this depression) + Gold and silver + real estates.
As for $, massive devaluation is a must in order to rebuild America. It can not hang on an economy with 70%-80% services, a large % of which is a money losing financial games.
The rise of $ in the past few months are the result of several moves: payment squeeze on trade deficit countries who still prefer to settle in $; withdraw of oversea investment by US investors; potential easing by other central banks while the US is already done.
It appears to me all financial tricks have been played out. Currency swaps among other central banks are on the rise, which clearly try to squeeze the $ out of their mutual trade settlement system. The world can not go back to "goods for goods" trade. But they are trying to find other ways to settle. Wolrd trade volumes are falling fast.
Yes. Gold only looks bad in the 3 currencies: $, Chines Yuan & Japanese Yen.
I acutally posted eslewhere with a postulate that the strength of $ is partially derived from its reverse pack to Yuan & Yen. Some folks didn't like my observation. But if one looks at the new vocabulary "Chiamerica" created by the renowned Harvard Prof. Ferguson, and the eocnomic content underneath, it is not far fetched.
Unless you're a trader, patience is a virtue in this environment. There's a tidal wave of money being created and pushed at the system by the wave machine in the basement of the Fed. As the perceived deflationary pressures increase the wave machine will be turned up to ever-higher settings.
Expect this to get underway in earnest once stimulus plans have been enacted and stimulus money has begun to flow. Gold could very well fall until that time, it could be months. So what? If I part with physical now, will I be able to get it back? Will a black swan touch down? I choose not to gamble.
Draw lines on paper and trade based on them if you like.
Gold is headed down as the dollar strengthens. After the 1930s it took 40 years to see inflation.
> Most comments make the same mistake. ---The govt is printing huge
> amounts of money. Not true. As debts are eliminated, dollars disappear.
> Trillions of dollars are gone while the govt creates little or none.
That's the theory anyway, and the Fed is betting my life on it.
In this interview, Bill Poole disagrees with you:
www.blinkx.com/video/p...
"I think the Fed is making a mistake quite frankly in not viewing its policy through some sort of constraint on the liquidity side of its balance sheet. It cannot continue with a printing press to finance all of its credit extensions, however worthy they might be one at a time, without producing a large, long run problem. I know of no example in history where resort to unbridled use of the printing press turns out well and happily."
On Jan 15 09:41 AM anarchist wrote:
> Goldbugs always rally against those who say anything derogatory about
> the antique. The dollar is the current <store of value> which frustrates
> the goldbugs as they read their newsletters explaining that the Government
> printing presses are melting down from overuse, inflation will be
> rampant, blah, blah, blah. But never the less the majority of the
> world no longer sees gold as a hedge against anything. I know, the
> lines on the chart are crooked, there is a great manipulation of
> the yellow metal, etc. but I agree with Jeff, if you own gold it
> might be a good time to take some chip off the table.
Short gold and the gold stocks at your own peril.
I do have a technical to add that I find interesting, and that is the new pro Shares double long and double short ETFs. I have been involved with the double short (GLL). Until recently, volume was nil, with most of the action in the double long (UGL), but that flipped this week. The relative volumes give a flavor for speculative trends in my opinion.
On Jan 15 08:28 AM dieuwer wrote:
> The lines you have drawn in the graph are not parallel. Therefore,
> no breakdown (yet).
Duh, what debts had been paid down?
On Jan 15 12:52 PM SW Richmond wrote:
> On Jan 15 12:36 PM CLH wrote:
> the goldbugs.... <<<<
It's taking much more of that "store of value" to buy breakfast in the mornings. I'll need a bigger store soon.
The rest of the world still sees gold as money and the "smartest people in the room" in the US will feel the pain of their mistake about gold as money to the rest of the world.
It might be time for the US to loose its role as leader in the world because it has lost its way.
This new century will be led by the Pacific rim countries and only supported by the US when we get our act back together...say like in five years from now. After the Democrats fail miserably to turn our country into a socialist nation.
On Jan 15 09:41 AM anarchist wrote:
> Goldbugs always rally against those who say anything derogatory about
> the antique. The dollar is the current <store of value> which frustrates
> the goldbugs as they read their newsletters explaining that the Government
> printing presses are melting down from overuse, inflation will be
> rampant, blah, blah, blah. But never the less the majority of the
> world no longer sees gold as a hedge against anything. I know, the
> lines on the chart are crooked, there is a great manipulation of
> the yellow metal, etc. but I agree with Jeff, if you own gold it
> might be a good time to take some chip off the table.
On Jan 15 10:08 AM Chang wrote:
> You folks are funny. Yes, gold is manipulated. Yes, it is going down
> ($500, minimum). Just look around you at ALL the commodities, almost
> all of them have been slashed by at least 50%, do you really think
> gold is any different? Its not.
> I agree, the lines on the chart are not parallel, maybe we should
> chip in and get him some glasses and a ruler. LOL!!!!
On Jan 15 12:02 PM Larry House wrote:
> Thanks for the heads up. Looks like you got the folks stirred up!
> That's good.
If you are a cash & carry hedger and embark on an option writing program needing to write to a neutral hedge ratio daily you will have hundreds of options being traded.
Gold just trades inversely to the USD (not 100% though).
Also, what isn't drawn in on the chart is the descending line that clips 4 tops. Only three are shown in this chart as it doesn;t extend back far enough in time. Check a longer time frame for:
March 08, July, 08, Oct 08, and the last peak at around the beginning of January 09. A pretty consistent 20% drop across the peaks. And (ahem!) a descending megaphone if you care to draw a 'non-parallel' line across the bottoms.
We also have a conceivable double top in the last peak, and price seems to keep beating its head against the now descending 200 MA.
The only thing I'm not happy with are the associated stochastics and upturning +DMI, which could indicate oversold.
jegan ;-)
On Jan 16 02:33 PM secmaven wrote:
> In reading hundreds of posts on the subject of gold the consensus
> of the bears is that gold is likely to go to $500/oz. The consensus
> of the bulls is $1,500/oz. So we weigh the downside of $300 against
> the upside of $700 and the long term bet becomes obvious.
1) The rising dollar: History tells us that when the dollar goes up in value, gold goes down.
2) In a glogal recession, gold jewelry purchases should decline.
3) Worldwide, the experts are saying that laptop sales will decline.
4) Deflation (current)
Pros:
1) ETF's such as GLD are aggressively buying up gold by the tonne.
2) Comex is backordered, and will not be able to meet future deliveries on time.
3) Mints that make gold coins around the world can not keep up with demand.
4) Junior miners are having difficulties raising capital.
5) The wealthy, who have suffered 40% or more loss in the stock markets worldwide, are more concerned with preserving wealth, than investing in it. The huge increase in T-bills, and that some $10 trillion is on the sideline in money markets and treasuries backs this assumption.
There are other factors involved, such as potential nationalizations, the worldwide bailouts, the continuing of hedgefund redemptions, and perhaps the most nebulous of all, political tensions.
Lately, since October, gold bullion has been trading in a declining "pennant." This makes me suspicious about the near term of gold. Today, gold is at a near-bottom of this pennant, and what did it do? Gold went up, as did most mining stocks.
I see a short run up and then a decline. This market is being traded technically, not fundamentally.
If GLD breaks through $90, then gold is off to the races. If Gld goes below $78, look out!
Discalimer: Long in Jaguar Mining (JAG); channeling Yamana (AUY), Nova Gold (NG), Minefinders (MNF), Gammon Gold, Hecla Gold (HL), and others.
Let me get this straight. So, if gold goes up, you are bullish- and if it goes down you are bearish?
That's useful analysis. Unfortunate, because I liked the balanced perspective that preceded the last part.
Take a look at soyouthinkyoucaninvest.../
I also compiled a complete list of all the commodity ETF and ETNs available to US investors as well as detailed data on each and saved them in a convenient google spreadsheet that everyone can view and download.
Take a look at soyouthinkyoucaninvest...