Did Oil and Gold Top?

Includes: GLD, USO
by: Beris Blog

Brag, brag, brag,

But really, that’s not the reason of this write-up. I just wanted to point out the significance and obviously visible (predictable) trends that showed up when I mentioned a temporary top in gold, and the slide down from there (see Is the Oil and Energy Bubble About to Burst? and Oil and Gold Breakdown: Watch Out Below). But mainly, I wanted to grab your attention with the headline, I hope you don't mind.

Just look at the chart again here. At that time StreetTracks Gold shares (NYSEARCA:GLD) have been trading at above $80 and our prediction was that it will slide to $70 (which is now $71 as the support line continuously moves). Click all charts to enlarge.

That verdict came out exactly at the time when gold and commodities were at the highest momentum, looked extremely, 100%, bullish to most analysts, and every analyst was touting that gold is not stopping until $1000. We took the opposite stand (even though they say don’t stand in front of the train), and it precisely did that (at least the first part)- it slid without reaching the magic $1,000. Now we are waiting to see if indeed GLD will tumble to $71 area (even $66) as we pointed out. Just follow the trends on the chart. So, $1,000 is probable, but possibly not in one run as we pointed out. There is no straight line up or down. There are corrections.

A similar situation happened with oil. When every analyst touted $100 oil, we pointed out that day that it will stop right before that, and will not reach $100 in that run. Sure it will reach $100, but not before correcting first, which it’s still doing (although modestly advancing today due to the option expiration day). The chart below is when we called "the top". Currently United States Oil Fund (NYSEARCA:USO) is below the upper resistance line. If you follow the zigzag line below, you can guesstimate where we should go with USO (down, I'd say).

If we add to it the action in Japanese Yen that we are seeing lately, one can only predict that its possible appreciation would possibly cause a further sell off in commodities, and help our trending predictions. As we know, Yen’s appreciation would cause investors to close their low rate loans as their margins are squeezed. Those low-cost loans are used to buy commodities. Closing now-higher-loans means selling those commodities.

If we look at the chart below we can see that Yen is a bit jumpy lately, and the huge disparity between Japanese Yen and gold price might try to close in somewhat.

On the one month chart, here below, one can see more closely this relation: when Yen slides, gold is going higher, and vice versa, and right now Yen appears to be wanting to appreciate somewhat.

So, all in all, it remains to be seen.

In any way, if Yen indeed continues appreciating to a certain degree, we can expect gold (commodities in general) to slide somewhat. If that’s the case, and history is our pathway painter, our equity markets might trade along the Yen. Rise in Yen usually makes our markets rise (see the chart below where it’s clearly visible how S&P closely resembles moves in Yen).

We will see the how the action plays out in Yen, Dollar, commodities and equity markets next week, and whether our targets in Gold 700/750 and Oil 70/75 might be too far fetched.

Disclosure: Author holds a short position in the above mentioned securities