“Woe to the land whose king is a child and whose leaders are already drunk in the morning. Happy the land whose king is a nobleman, and whose leaders work hard before they feast and drink, and then only to strengthen themselves for the tasks ahead”. (Eccl 10: 16-17)


"When misguided public opinion honors what is despicable and despises what is honorable, punishes virtue and rewards vice, encourages what is harmful and discourages what is useful, applauds falsehood and smothers truth under indifference or insult, a nation turns its back on progress and can be restored only by the terrible lessons of catastrophe." … Frederic Bastiat


Evil talks about tolerance only when it’s weak. When it gains the upper hand, its vanity always requires the destruction of the good and the innocent, because the example of good and innocent lives is an ongoing witness against it. So it always has been. So it always will be. And America has no special immunity to becoming an enemy of its own founding beliefs about human freedom, human dignity, the limited power of the state, and the sovereignty of God. – Archbishop Chaput


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Wednesday, June 26, 2013

Gold Chart and Comments

Several readers have asked me where I think this move lower in gold could finally exhaust itself. That is a good question.

All I have to go off of is the chart plus the knowledge that various costs of production for gold continue to surface from the investment houses. Some put the cost between $1200 - $1250. I have seen other estimates taking that down to $1150 or so.

The point is that gold is nearing levels that are going to make it extremely difficult for many mining operations to continue at any sort of profit. Already I am getting reports from S. African miners that are in trouble.

As I mentioned in a previous post, mine shut ins will only begin if gold moves to these aforementioned levels and stays there a while. If it just hits those levels and rebounds higher, the shut ins will not take place. I do believe however that we are not currently in an environment in which gold is going to violently rebound higher. Barring some unforeseen event, there is simply no reason to hold the metal especially in the face of rising interest rates and a widespread belief that inflation pressures remain subdued. Throw in the fact that the US Dollar is very strong, and that means gold is going to have a difficult time mounting any sustainable rally in price.



All this being said, the chart does provide us some interesting information when tied in with those cost of production estimates.
Notice the lines that I have marked, "SUPPORT" on the chart and note the price levels that they come in near.

The first one is just about at the $1150 level. That number is mentioned above as one of the costs of production. Then you have a major 50% Fibonacci retracement level coming in near $1090 and another level of support near $1050.

I see things as follows: Gold has round number psychological number support at the $1200 level. Thus far in this meltdown, those round numbers have not been very good at holding on the downside; rather they have served fairly well as selling points for rallies.

If $1200 fails, then you have support down at the cost of production near the $1150 level. Seeing that markets tend to always overshoot prices because of margin calls and other assorted technical factors, if $1150 failed to hold, you could see another $100 or so drop in price. That would take gold into the next support level noted below the 50% Fibonacci level which is $1050.

Let's just say that I do not believe gold prices would stay down below that level for any length of time. I remember what seems an eon ago when it was buying from the INDIAN CENTRAL BANK that took the price of gold through the $1000 level. It never saw that level again.

My thinking is that Central Bank buying will be quite intense should gold ever get to that level.

My view is that $1050 would represent a buying opportunity, should gold get down that low for long-term oriented investors. Remember, this is for investors, not traders.

Obviously any production cutbacks would impact the supply side of the supply/demand equation only. We still need to see how demand will shape up as price descends lower. Demand must exceed supply if price is to rise.




6 comments:

  1. 1050 would be stellar. Of course, you want to be in a little ahead of that. Say 1060. My .02

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  2. Never say never. Even $33/ounce gold is possible. It would not surprise me.

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  3. http://jessescrossroadscafe.blogspot.com/2013/06/gold-daily-and-silver-weekly-chart.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+JessesCafeAmericain+%28Jesse%27s+Caf%C3%A9+Am%C3%A9ricain%29

    ReplyDelete
  4. Thanks a lot, Dan, it's reassuring to have your point of view.
    Strange, I'm using prt for my long-term charts, and I don't have the same retracements than you because prt gives me a low in gold at 303 $ instead of 250 $.
    I already saw a few différences between different charts depending on which platform I was using (WHS, Global Futures, Prorealtime, Boursorama...), and even on short term I've been sometimes surprised by the discrepancies. Don't know what to do to solve this.
    As we are getting close to the end of the month / quarter, I'm just posting a few charts.

    1) Quarterly time unit.
    The red candle is simply monstrous!! Look at its size compared to the 10 years rallye. If we close at the lowest, I wouldn't be surprised to see prices go even a bit further down in Q3, given the strength of this awful marubozu :(

    http://s16.postimg.org/6v7dsmcg5/gld_q.jpg

    ReplyDelete
  5. 2) bi-monthly time unit.
    The only thing on the way up is the inferior bollinger band, around 1175. But as they are converging, it might eventually provide a support and stop the bleeding for at least some bounce, in the 1130 (fibo on my chart) - 1150 area.

    3) monthly time unit.
    Well...I traced long time ago this uptrend line, but I didn't think we may test it so fast. It goes around the 1150 area again, and intersects with the mlh inf of the Andrew's fork, which is my target on the way down since its median gave way.

    http://s11.postimg.org/3qam8q1kj/gld_m.jpg

    Conclusion : given the awful size of the quarterly marubozu (though still 2 days to go), I see a convergence of levels around the 1150 area. 1200 being also a Fibo of the 750-1940, maybe prices will bounce there. Globally I see 1130-1200 as a large support zone, with 1150 as its core.
    Based on this TA (which is my personal opinion, nothing else), I'll probably try to buy in this area to play a bounce after summer.
    My sympathy to all gold holders (including myself lol) after this awful quarter.

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  6. P.S : to Hubert, here's how I'm going to use TA for my decision making.
    I'm rarely trying to catch a falling knife, but I sometimes do so when I think the market is really over-extended and is likely to bounce temporarily on a distant support.
    It's the case here if I take as a support the mlh inf of the Andrew's forks for gold and silver.
    I don't advise anyone to go long, short, or anything.
    I'm just sharing my position to describe why I think TA is somehow relevant.
    So I put a buy order at 1150 $ and for silver 1150/70 = around 16.50 $ which also corresponds to the mlh inf (70 being my anticipated ratio of gold/silver should gold reach 1150$).
    As these prices are already low and close to long-term investment territory as Dan mentionned,I will buy slightly there but on the physical side, i.e no stop loss, long term investment / reinforcement of my positions.
    Obviously not with all my cash, as prices may very well drop further down, and I'm here trying to catch a falling knife indeed.

    ReplyDelete

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