Happy Days for Gold?

Gold was in the spotlight on Friday in a big way, nearly moving $39. Is this a hat tip to the big move that many goldbugs have been anticipating? Is all the money printing by the Federal Reserve finally catching up with the US Dollar? Should you have bought gold on Friday because it’s a straight line up from here? Let me preface my answers by saying that I’m a short term trader that will sometimes allow a trade to turn into a longer term trade but that doesn’t happen very often. I’m currently flat precious metals but will be looking for a good risk/reward, but for anybody reading this know that this analysis is from a momentum based perspective.

So the answers to the previous questions I believe are yes, yes, and no.

I’m a big fan of gold for a number of reasons (fundamental, technical, historical) but I know from experience that it trades much different from a momentum point of view. It tends to sell off once it goes outside its upper bollinger band as seen by the arrows above. Just when it looks like gold is going to bust out and move to blue skies it seems to run out of buyers and reverses. As you can see GLD and many individual gold miners moved outside this indicator on Friday and I expect a small pullback before it begins a new wave up.

Judging by the negative divergence on the RSI you can easily see that momentum is waning. As the stock has been making higher highs, the RSI has not been confirming the move. We could possibly move up to the 92 level before profit taking hits, but I just don’t see a good entry at this point if you’re not already invested in these stocks. It would be more prudent to wait for a slight low volume pullback before entering. The only problem with this way of thinking is there could possibly be many with this outlook and that could actually propel gold to higher levels, but I’m willing to risk that because if it does move up even more, then that will confirm the strength and I’ll buy even more on the eventual dip.

If you are long from lower levels I would consider taking some profits off the table now to prevent yourself from giving up any of your gains.

“I made all my money selling too soon.” ~ JP Morgan

I like silver’s chart a tad better from a technical aspect as the base that it’s been building since last September seems a little more stable. The RSI trendline has been steadily moving higher as the price has been trending higher which is very bullish. I think we’re a tad overbought here and will be looking to get long stocks such as PAAS, SLW, and SSRI when we pullback or move sideways for a week or two.

Comments

[Gold Barron]

I agree with the author in that silver is a great long term investment. As well as gold :-)

2009 Jan 25 05:00 PM

[Lonestar1]

From a technical viewpoint, the move last week was significant in several aspects:

(1). It broke the down trendline since 7/15/08. The next resistance, as Jeff pointed out, is $92 for GLD. $92 is the trendline level since 3/15/08 (the very top). A breakout above $92 would be very very bullish for gold.

(2). Last week, gold was on its own, despite up or down move of $. This is very important.

(3). Some pullback is possible at $92, if this resistance is not impulsively taken out.

(4) My original expectation is the breakout should be in early Feb when Feb futures contract delivary requests increase more forcefully than Dec contract. Clearly if $92 is taken out impulsively, gold would entering a new territory earlier.

(5). Retracement from $92 down to $83 area would keep the bull agenda intact.
----------------------...

Above is purely chart reading.

Fundamentally, let helicopter Ben airdrop to the pockets of goldbugs.

2009 Jan 25 05:38 PM

[Philly Jim]

Gold is going up because everyone is saying it will. Hmmm, I highly doubt inflation will occur in the economy we are in, seriously, deflation if anything. The rest of the world is not much better off than the United States, albeit the rapidly changing social demographics in the U.S. are much more frightening than this debt crisis and any other problem out there.

2009 Jan 25 08:16 PM

[denaliguide]

Well OK, I agree with EVERYONE ! I agree that GOLD will do as IT WILL DO.
Vis-A-Vis, Technical Analysis it is POISED. USING V1.V VIRAL Technology, I'd be betting that we have seen the lows, and that the next highs occur, say around or before the IDES of MARCH. I stopped calling Numbers and Dates, and now
attempt to position myself on the Breaking Wave of the Intermediate Trend, more than that, if using real money, is incurring too many risks, considering all the variables. The V1.1 Viral forecast is available in back issues of the DGS letter, no charge at "[e-mail]...

ya'll have fun and fight nice, now, ya hear ?

DG

2009 Jan 25 11:52 PM

[Ian R. Campbell]

For 35 years I ran Canada’s best known Business Valuation Consultancy. Three years ago I became intensely interested in the U.S. Consumer, world economic prospects, and the mining and oil & gas sectors. Each day I review over 100 Internet articles and summarize and comment on them on StockResearchPortalBlo.... Today this is one of them.

Unlike Jeff, I am not a short-term trader but rather a long-term holder. Having said that, I am in his camp that everything I know points to the gold price going higher in the next few months.

2009 Jan 26 10:17 AM

[GloomBoom.com]

Gold should be a long-term investment. In this environment, you can't lose with gold. $2010 by 2010.

2009 Jan 26 12:22 PM

[Jake2]

Nice job, Jeff. Thanks very much.

2009 Jan 27 01:28 AM

[Jsonsplace]

I agree with GloomBoom.com precious metals should always be a long term investment. Why you ask? Well let's see it has NEVER gone down and stayed down since the begginning it has ONLY gone UP. I also don't care why gold is going up whether it is speculation or the value of the dollar. I was wise enough to buy when gold was less than $840 per ounce, and silver was around $11 per ounce so I am sitting pretty (silver is probably a little better investment at this point than gold, but I have all 4 precious metals so I am ready). If metals dip again you better believe I will be getting more.
Here goes the "goldbug bandwagon" YeHaw!!
Heck Yeah $2010 in 2010!!!! :-)

2009 Feb 10 09:46 PM