Gold Is At a Critical Juncture

 

FINAL UPDATE 4:15pm ET:  After a stomach-turning trading day, I have little evidence to prove or disprove my hypothesis that gold could have put in a bottom today.  On the one hand, after my initial post both the futures and spot prices dropped about $5 more.  On the other, Dec gold clawed its way back and closed slightly above the 862 mark at 864.30.

Outside markets fared worse.  Silver, euro currency, crude oil, and ags were hammered all day long.  As a result, gold actually rose over the 24 hour period in Euroland (see below).

With the verdict still out I remain long; however, because the metal did not show the resilience I expected, I have trimmed my position considerably.  Now back to your regularly scheduled microcap programming…

INITIAL POST: I’m going out on a limb here with Dec Gold trading at 862 to say that there is a high probability that the bottom gets put in gold today.  This is not a prognostication; its a recognition of a number of factors: 1. gold is near critical support  2.  the downtrend this week leaves gold very oversold on a near term basis  3. gold softness is largely a result of dollar firming, but as Trader Mike charted yesterday, the dollar is facing trendline resistance at around current levels.

I’m testing this thesis with gold/silver futures.  If I’m wrong I will be out by the end of the day.

UPDATE 9:10am ET.  Dec Gold is up slightly but the real test is ahead.  If this is going to be more than very-short term intraday relief, Dec gold needs to recapture 873.

UPDATE: 9:55 ET.   Dec Gold broke to new lows, together with the Euro and Sep. Crude.  I’m going to give the trade a bit longer, but plan on closing out today’s positions if they are not green before the end of the day.

DISCLOSURE: Long gold/silver futures and a few mining stocks.

Comments

[CLH:]

I agree with truth. Gold will probably have a short term bottom now with a tiny up and then down again.

I cant think of any reason to buy gold now. I sold in March and stayed out of the double top in July.

2008 Aug 10 10:46 AM

[CaptBob:]

When oil brings the drivers back to the pump, everyone will realize the dollars illness is not in remission.

I will wait to reenter gold with the $$ relapse, no sense in trying to wring the last nickel out of a bottom with this much long term potential.

2008 Aug 10 12:24 PM

[Jimbo:]

I still agree with the "grassy knoll" conspiratorial crowd: there is some measure of market manipulation because Central Banks are trying to control inflation and thus keeping the peasants from departing the currency. Remember this post in about one to two years. If gold is still flat, then I will have been badly wrong.

2008 Aug 10 03:00 PM

[Don-100:]

Don't forget that gold is typically seasonally weak during the summer. Here is a good analysis of this: www.zealllc.com/2008/g....

Historically gold has held its value, essentially neutralizing the affect of inflation. There are a number of factors that point to elevated inflation in the US. Many believe that the slowdown in the US (and then the world) economy will blunt these inflationary pressures. But if that's true, won't stocks be hurt by this slowdown? At current P/Es, equities don't appear attractive to me.

I exited my precious metal positions in mid-March of this year and am eagerly waiting to get back in. By design, I begin establishing a new position slowly and only after gold has proven to me that it is most likely beginning a new uptrend. The test that has worked in the past for this is (1) gold price being at or below its 200-day simple moving average and (2) gold price 50-day simple moving average beginning to slope upwards. Yes, I'll never buy at the bottom with this strategy. But, I rarely get faked into buying a blip that fizzles out. Good Luck!!!

2008 Aug 10 04:28 PM

[jakedeez:]

I mean, it seems to me like long gold is a very tough trade to make or be in right now... Seems like oil is crashing... gold will not do well if oil keeps crashing.

2008 Aug 10 09:59 PM

[Did U Think...:]

The secret to gold: don't try to time it. Dollar cost average your way into it and consider it retirement savings. 10, 20, 30 years from now it will still be there, bright and shiny, while fiat currencies have evaporated. Forget the day to day price moves now that it is no longer mandated to 35/oz by gov't manipulation. Banks settle their debts in gold. It is the money of kings ancient and present. It is constitutional money, unlike the dollar. It requires no maintenance or work to maintain its value. You are not taxed for holding it and if you have any brains at all you will not be taxed when you finally redeem it during retirement for food and clothing and other staples of living.

People make the act of saving too complicated. It is not required to invest in order to save, unless of course, you save dollar bills which require your to put them to work else inflation eats them out from the inside. Investing = gambling. There is no such thing as a safe investment. Gold <> investing. Gold=saving.

Just look at the gold chart from 1971 to today. It's up nearly 30x. Not 30%, thirty *times*. And that is a REAL number because you did not have to pay property tax on it and you never had to spend money to fix a leaky faucet or paint the exterior like you would have to do with real estate, etc.

Now if you want to invest, then OK. If you want to take a chance of losing so that you have a chance of getting more, then FINE. But that is not saving, it's gambling. And gambling can and does produce losses. Gold=savings, not gambling. The only gambling with gold is when you buy all of it at once when you are close to retirement so that the averaging of the fluctuations is not able to take effect.

2008 Aug 11 04:18 AM

[jakedeez:]

"Banks settle their debts in gold"

What banks do that?

Also, do you really believe that the currency will go away? I mean, that seems kind of extreme.

2008 Aug 12 06:07 PM