Could There Be a Real Breakout in Gold?

After a series of head fakes much of the past half year, the most watched move in the market might finally be "real" this time. With all the world's printing presses going on overdrive, and currencies being mocked - gold "should" have been rocketing. Many theories persist on why it hasn't, but really it does not matter. The price action is all that matters and this type of movement will get the technicians very interested.

Things to like
1) a series of higher lows
2) the trendline of lower highs has been penetrated

Things to see for confirmation
1) any pullback is bought
2) price prints over October 2008's highs, signaling the end of "lower highs"

When last we looked about 6 weeks ago [Dec 11: Dollar v Gold - Can we Trust this Change?], it was just another headfake - this formation on the chart does look more promising.

These are 2 names; one in gold and one in silver we've had our eyes on.

Or just play it simple and go double long gold

Comments

[henarl:]

As long as we're stuck in this depression/deflation mode, gold will probably just move sideways. When inflation inevitably finally takes off, gold will soar.
Long SLW, CDE, GFI, GG.

Jan 26 10:08 AM

[BrunoT:]

DGP is up something like 66% from its low 3 months ago. I figure it was forced selling. The fundamentals seem to scream that gold is headed up. I don't buy the deflation theories, just too much money creation in the pipeline.

Jan 26 10:09 AM

[John Polomny:]

I like your analysis but I am cautioned by one item. Bloomberg did a survey on gold bullishness among traders and found a 90% bullish sentiment. That definetly gets my contrarian spidey sense on alert. However I am of the opinion that we should let the price action tell us what the metal wants to do.

Jan 26 10:10 AM

[silverwood:]

Price action in gold/silver markets appear to have broken out to the upside. One possible explaination for this occuring at this time is the transition from the Bush Administration to the Obama Administration. Traders may view this as a time of weakness and are simply testing the waters so to speak. After all the long term fundamentals for gold/silver have been up and we have just come through a fairly long period of consolidation and base building. This rally presently has all the earmarks of one that will challenge the 08 highs. I say godspeed to it!

Jan 26 10:13 AM

[MellowGuy:]

Gold is getting too high, I am selling what I bought (GLD) under $800/oz now that it's over $900/oz.

Jan 26 10:37 AM

[Nikola:]

Strong gold -> weak dollar. Will They let it happen? Weak dollar, high interest rates. High interest rates, how we gonna finance the bailout?

Don't believe the hype. Unfortunately.

Play the Euro now. It's safer. They'll let Euro appreciate a bit. That's safe, because that can be crashed down more easily.

Jan 26 10:56 AM

[GMiki1:]

I tihink the breakout had to do with the situation in England and the Brit economy and banks crashing. That makes the dollar strength irrelevant to many. Have physical gold and silver along with your stocks--SLW is great (I own it) and GG (yes, I do), plus some of the nice juniors. This may well be the year for the juniors to take off. We have lots of good ones that have been advancing their projects despite the horrible environment for them. They're a screaming buy. Sabina Silver, Bravo Gold, others.

Jan 26 10:56 AM

[Nikola:]

Really, they can't let it happen until all the bailouts go thru. Only THEN can we have inflation (to eat away that debt), and only then will gold go up.

Jan 26 10:59 AM

[Cesato:]

It may be, but let it work down to the 830/850 level before riding the wave. The analysis is well done but the buy on dips confirmation is needed and that will happen in the 850 area, actually in the event of a sell-off from 900 down to 830 and then a quick rebound from the 830 level straight through the 850 level would the perfect setup for the next run to 1.000. If the 830 level is penetrated once more on a closing basis then hold your horses, however if it holds then at least the first 2Qs of 2009 can provide a good return in your Gold investment. Long Term Charts (Yearly, Quarterly and Monthly) likely support the idea of a bull run from mid February onwards. Good job.

Jan 26 11:32 AM

[GloomBoom.com:]

Gold is definitely the place to be. Keep it for two years and you will be very pleased.

Jan 26 12:05 PM

[TraderMark:]

John P, I agree there is a lot of bullishness. When everyone is looking for something it rarely happens ... on the other hand with the events of 2008 you'd think gold would be $2000. So everyone has been "looking for it" back half of 2008 and it did not happen.

Everything is so technically based so I assume the computers that run Wall Street will let us know if its time for the lemmings to jump on board "the trade"

Jan 26 01:02 PM

[User 265729:]

I think you are on target with this one, but the long call is a tough one to make. I think it really depends on how bad things get. If things get really bad (economic nuclear winter) than bread and butter commodities may be the way to go.

Here are some recent comments made yesterday that supports placement outside of equities and into something like gold (short-mid range):

BIDEN:

Vice President Joe Biden told the CBS program “Face the Nation” that “it’s worse, quite frankly, than everyone thought it was.”

“It’s getting worse every day,” Biden said today. “There’s been no good news, and there’s no good news on the immediate horizon.”

LARRY SUMMERS:

“The next few months are, no question, going to be very, very difficult and it may be longer than that..”

PELOSI:

Pelosi said economic conditions are “dark, darker, darkest” and need immediate assistance.

KENT CONRAD:

“I don’t think anybody knows” how big the stimulus should be, North Dakota Democrat Kent Conrad, chairman of the Senate Budget Committee, said on CNN today. He added that “we’ve got to be very concerned about our long-term fiscal condition.”

DISCLOSURE////////////...

NOTE: I have no position in gold, but I'm strongly considering it at this point.





On Jan 26 01:02 PM Trader Mark wrote:

> John P, I agree there is a lot of bullishness. When everyone is looking
> for something it rarely happens ... on the other hand with the events
> of 2008 you'd think gold would be $2000. So everyone has been "looking
> for it" back half of 2008 and it did not happen.
>
> Everything is so technically based so I assume the computers that
> run Wall Street will let us know if its time for the lemmings to
> jump on board "the trade"

Jan 26 02:32 PM

[hroni:]

Here's a trader ahead of the blogosphere herd getting thumps down for a profitable trade! These couple of Seeking Alpha wolves, twice the losers!


On Jan 26 10:37 AM MellowGuy wrote:

> Gold is getting too high, I am selling what I bought (seekingalpha.com/symbo...)
> under $800/oz now that it's over $900/oz.
>

Jan 27 11:46 AM

[ajit:]

I think there will be a ILAND REVERSAL ?

Jan 27 01:34 PM

[Delojozafado:]

Let gold and silver go higher I own a little of both DGP and GLD. Mainly however I am now overweighting the Loonie energy centric yield paying instruments. I am only even in my 2500 units of GLHIF with it's 6.8% effective yield. I have a smaller position in ENY. Should gold, silver, therm & met coal, O&G and the basic materials respond to the inflation weakening the US $ scenario the Loonie should see a strong move higher along with the Aussie $ and the Real. The GLHIF is a "golden" opportunity here with a 3 way missile attack nearly blowing it out of (the ) water. BAM has done a unit dilution $75 MM Loonie BD financing at $16 CAd, The Loonie has broken through .79. All this while the Trust endures the annual 1st qtr Hydrology. At $12.75 US dollars this is a gem of purest ray serene set in the Canadian gold, silver, basic mats and O&G centric currency foundation. $65MM of the BAM acquisition will be immediately accretive from new generation facilities being acquired. But come ye back when sunshines in the meadow... the snow turns to rain that melts the snow pack and those seasonally more intense low pressure systems penetrate deeper "Down East".... At $12.75 you are in at below the NAV as calculated by BAM ... $13.02 US $s=~$16 Cd @ .814.

Jan 27 02:04 PM

[psig:]

What if the government confiscates gold and resets its price like they did in the 30's? Then they bought up gold at $20 and repriced it at $35 in 1933. Today that would be be buy it up at about $900 and reprice it at $1400. Why not reprice it at $5000 or whatever price they could get away with after confiscation. Wouldn't this take care of a boat load of the debt the gov't is incurring? What would that do to the economy? Has this any basis in reality or would it be goofy, bad, or impossible for the gov't to do this?

Jan 27 04:54 PM

[Keer-eh-Khar:]

Trade Mark, how about PAL , pal?

Gold 1500, Silver 30 by 2010 Baby.

Jan 27 06:03 PM

[mwfall:]

babble babble babble
lower highs

meaningless babble meaningless babble meaningless babble
trendlines

babble babble babble
higher lows

Jan 27 09:30 PM

[PeteK:]

The Topic of this article should read:
"Gold Is Breaking Out." or,
"Gold Rush is On."

Feb 01 03:26 AM