Gold: Entering an Accelerated Trend Channel

Gold has history on its side. It is a proven way to preserve one's wealth over time. It acts like an insurance and it is highly unlikely mankind's behavior during the last 6,000 years is going to change anytime soon. Some things never change. Two of those things are human nature and gold's capacity to preserve one's purchasing power.

That said gold has recently reached new highs in various foreign currencies. The chart of gold in Euro terms tells the story of what is to come. Don't take this lightly. This is an important event as new highs typically attract more buying. If the Europeans start allocating more funds to physical bullion demand will increase drastically and gobble up supply. It is reasonable to expect additional upward pressure for the price of gold. Physical accumulation is accelerating on a worldwide basis. Keep in mind gold is a very tiny market compared to the equities market. A change in asset allocation resulting in a small increase to bullion exposure could easily double worldwide demand for gold bullion investment purposes.

A story hitting the wires recently is that: Greenlight Capital's founder, David Einhorn, is finally taking his grandfather's advice. The $5.1 billion hedge fund is buying gold for the first time amid the threat of inflation from increased government spending. Einhorn fund's recent decision to invest in physical gold bullion is testament to increased awareness of gold's bullish long term trend and it looks like this is only the beginning to added buying pressure for gold bullion.' For full coverage of the story click here.

It looks like the price of gold in US Dollar terms is merely lagging other currencies as the US Dollar has been very strong lately. It is still early to draw conclusions as the US Dollar could stay stronger than most people expect but the new accelerating trend channel looks to be a valid one.

So what it all comes down to is that worldwide accumulation of physical gold is accelerating. Hence the odds the gold price is going to accelerate as well are rather high.

If you haven't built a physical bullion position yet now is a good time to think about doing so. I typically recommend holding at least 5% of one's liquid net worth in gold bullion held in your own possession. Increasing that percentage up to 20% isn't that bad an idea either. Although the markets look like they might want to stage some kind of rally right now taking a longer term perspective indicates the gold trend is going to make you more money than buying the S&P500 via the SPY.

Gold should reach new highs in US Dollar terms soon following the lead of foreign currencies like the Euro, the Canadian Dollar, the Australian Dollar, the Swiss Franc and the British Pound Sterling to name a few. As long as the lower trend line of the new dotted trend channel is not breached 'the trend is your friend' and you should hold on to your gold bullion position. You could use that level to protect your position with a stop loss.

If you want to be more aggressive you should consider buying silver bullion. The silver market is much smaller than the gold market so the market is considered to be a riskier one. But once the public is going to stress silver's monetary significance as opposed to viewing it simply as another commodity silver prices will increase significantly and should ultimately outperform gold. I recommend closely watching the gold - silver ratio for clues. Historically the ratio has showed to be lower than the actual one. Watch for the ratio to go back to the 55 level and overshooting to the downside as soon as silver garners more interest.

You can easily keep track of the three charts and how they evolve over time by visiting my public list.

Comments

[Conan the B...:]

Holy molly, a failed H&S pattern or what I vaguely remember as a Diamond. Rarely seen, neckline to top of head added to the the top is considered to be the Measured move for this formation. ( I believe but don't remember where I put my book).

Add it to the Major decades long double, possibly triple bottom and "along comes Molly"! We have liftoff in progress.

Certainly it could change, But for now, Thank you Mr. Tibbs.

Mar 06 08:15 AM

[traderstraffic:]

Accelerated, yep down, watch the shorts come on strong, when it looks good the short bankers will come in and devastate everything and everyone. Gold is for the big banks to take everyones money. Gold is a Manipulated Market that the governments will do nothing about because if they did it would ruin the fiat money.

Mar 06 09:14 AM

[Cesato:]

Olivier, have you built a Gold/Silver position and if so at what level? I see you recommend buying now at USD 935 and & USD 13.37, today's avg, Do you stand by your recommendation? You don't seem to have a profit taking strategy, is it your recommendation to buy and hold? and finally your recommended allocation is raised from 5% to 20%, is it advisable to have such allocation without having in mind a downside scenario even if it's unlikely? I understand the important trendline you refer to is at USD 882, is that risk worth the effort?

Mar 06 09:43 AM

[mr freddo:]

Gold and Silver turned yesterday and provided hedge support on a very down day. I would expect gold to surge for several days as that seems to be the trading pattern with gold. It surges upward over several days and then drains downward over a couple of weeks.

The overall trend is up and away in this horrible market.

Mar 06 09:53 AM

[USisCorrupt:]

Gold & Silver will be the ONLY thing that will save your arse going forward. Enough said, end of story.

NEXT!

Mar 06 10:04 AM

[Chris-africa:]

I like Marc Fabers comment that you buy a bit of gold every month.When the price goes down you buy more and buy less as it goes higher.The gold is his retirement!! As he needs money when he`s retired he will sell bit by bit.This is physical gold!! I think I like he`s way far more than to trust your pension with some corrupt Banker or insurance broker.Maybe you could give your money to the Government, seen they own all the banks and insurance company`s.Enjoy your state pension!! I`ll go hungry with my gold!

Mar 06 11:09 AM

[comox:]

Goldcorp Stock (TSX: G) is an interesting stock to watch. It surges on the good news for gold and then gets hammered back down. It fluctuates inordinately with the sentiment of the market. I've made some money buying it at $28-35 and then selling over forty. It has tremendous cash flow and good prospects. It will probably be snapping up minor companies in near future as it has a strong acquisition background.

Mar 06 12:08 PM

[Jake2:]

Pattern looks like an inverted isosceles triangle to me, whatever that means.

Mar 06 01:51 PM

[Conan the B...:]

Jake2: You have it exactly. A Pyramid which can also be construed as a cut Diamond. Penetration of the right wall and going up from the flat bottom to the Apex is XYZ.

Create a new Identical Pyramid, Invert the Pyramid and do an apex to apex graph. This creates an hourglass image.

The top of this "hourglass" is the expected Measured move from a Diamond formation when it breaks a side to the upside.

IMHO

Mar 06 04:52 PM

[Ohhyeeah:]

Only strong hands can hope to hold gold. The banks cannot maintain their illusions. Strong physical hands will prevail.

Mar 06 07:22 PM

[5142152-337:]

paultaut & Jake2: I just sold a couple Buicks!

Mar 06 08:06 PM