“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, November 20, 2013

Longer Term view of Gold

As mentioned in a previous post this month, gold has fallen below TWO key Fibonacci Retracement Levels of the entire bull market that began in 2001 and ended in 2011. Using the low made in 2001 and the high made in 2011, and then the low made in 2008 and that same high made in 2011, we can construct two different sets of Fibonacci lines to see if we can any confluences which will give those regions/levels more significance should they not hold. The first level came in near $1298.60; the next level is at $1282.

These are not meant to be hard numbers but rather REGIONS where we can look for buying support to emerge. Thus far this month, both levels have fallen to the bears. If the bulls cannot recapture at the very least, the $1282 region, they are in serious trouble should this market end the month BELOW both levels.

I have noted a rectangle as Key Support. It begins near $1210 and extends down to the spike bottom near $1180 made earlier this past spring. It sure does look to me like gold is going to test at least the top of this range near $1210. If for any reason the market fails to rebound sharply from this level, the stage will be set for another test of $1180. If that gives way, this market will more than likely move all the way down to the 50% Fibonacci retracement level of the entire bull market move which comes in near $1086.

One could make the technical case that the price action over this year has formed a BEARISH PENNANT that has just failed to hold support. I would certainly hope not since the repercussions of this technical chart pattern would portend a move as low as $800, as inconceivable as that seems right now.



What I can say is that gold would be well below the cost of production were this to occur and last for any length of time. For that matter, even gold below $1100 is below the cost of production for many mines. The key will be, if it were to get there, how long it stays down there. It is one thing to spike into a region and then violently rebound. It is another for the price to languish there.

I have mentioned many times over the last few months that I believe gold miners should be using price strength to HEDGE portions of expected future production as downside price risk is just too high for any responsible mining outfit not to secure protection and at least lock in some guaranteed profitability on some production. It is a pity that more are not doing so as they would have been able to weather this storm in the gold price allowing their stock price to hold much better than many individual outfits are currently faring. I can only say that if gold were to violate that key support level, they had better be hedged. They can always lift some hedges at the time they sell some actual production but being naked and exposed to the vagaries of the market is simply asking for trouble.

As far as overhead resistance goes, in order for the bulls to dodge the proverbial bullet, the very least they need to do is to push price back over $1300 and change the handle. Even more however, would be to best this month's high which is near $1320.



21 comments:

  1. I can't believe Asian buyers would step up to the plate when lower prices are almost guaranteed by simply sitting on the sidelines.
    Indian buyers have been dealt with, no rescue there,
    Western buyers…not a hope.

    Realistically we all know where this is headed.



    ReplyDelete
  2. I agree with most of what Dan says with the exception when he talks about dollar strength. We are talking about USDX of 81 here, why are we making it sound like USD is strong? I remember when USDX of 80 was figment of someone's imagination that the dollar would drop drop this low, in past years we talked about 80 being some magical low number that gold would push gold to the moon. :) But here we are at 81!!! But then again I began buying physical when prices were in the 400s.

    IMO US index of 81 or even 84 is nothing to brag about.

    ReplyDelete
  3. A couple of thoughts. Asian buyers will not save the gold price; they'll be taking advantage of lower gold and this tactic just plays into their hands. Maybe there'll come a day when they just get fed up with it all and drop the $1.27 trillion of US paper they carry....who knows, maybe they'll convert it into gold bullion.
    The other point (Dan can maybe give us some wisdom here) is that james rickards and others have often stated that the US doesn't want a strong dollar (a strong Dow and low interest rates, yes but not a strong $) as a lower $ helps US exports/US economy and Rickards always says currency wars are a race to the bottom. It just seems with $ having reserve currency status and all that this brings that a weaker $ is hard to do as outsiders need US $ to make their trades....getting stronger is not a good thing we're told. On the other hand, China has struck deals with Russia and others to trade in country currency rather than convert to $ and trade, so maybe this practice will increase as China in particular worries that US policy is damaging the $ and therefore the $1.27T of US denominated garbage paper they hold. Not happy campers those Chinese LOL.

    ReplyDelete
  4. Dan Smith

    The USD is the only pig with lipstick at the party…where else do you intend to go, gold?
    If you bought at 400 you are fortunate…I suspect you will be able to add more at that price.
    I thought I was a real genius because my average physical buy price is around 850, I now can't get rid of it fast enough.
    The only future gold has now is probably as a black market item.
    If it come to that I'll take my chances with a carton of cigarettes.

    I apologize for my open bearishness but I have a question for everyone here, how many of you have bought gold or gold shares in the last month (or more)?
    Anyone here buying right now because it's such a good deal?
    Thats what I thought…..

    ReplyDelete
    Replies
    1. Dean, if I have any amount of cash beyond what it takes to pay my bills for 6 months into the future I convert it to gold. Not paper gold, not mining stocks and not GLD, only the actual yellow metal for me. But I don't trade for a living, I still work for a living. The price action doesn't rock my world. But no matter what any of us currently do for a living, we should not be complacent because there are forces in play that want to crush all of us and abscond what little wealth we might have. I know my own mind and trust the choices I've made for myself. Reading comments from whiners and second-guessers doesn't sway me in the least.

      Delete
  5. Pig with lipstick equals the best looking sow out of all the other world fiats. The US gets away with all its crap because it is the reserve currency. See any country capable of carrying the earth on its shoulders or you can trust more at this time? Plus, leave it to the US to discover abundant homeland oil, who saw that one coming? Still have the farmland to feed the world if we wanted to. Could also nuke the world out of existence.

    Sold miners for profits months ago, left with a core and almost sold all of that. The trend is down and has been down. Play DUST and NUGT back and forth now. 12% gain just today, sold, this is only way I can make money holding for a few days, rarely hold for a week. Big opening gaps, have to place your bets just before the close.

    Probably convert gold to silver eventually after the final washout during the coming lows. Much pain ahead for some.

    ReplyDelete
  6. There are many places to buy gold, the easiest and best way to buy gold is to visit the local jewelry store.

    ReplyDelete
  7. Hi Dan,

    Thanks for your analysis. Quite useful to share information about this market.
    For me, in a nutshell :

    - gold is breaking upwards support on the monthly time scale (1260 area is the mlh inf of the upwards pitchfork)
    - gold broke horizontal support on the daily time scale (1268 neckline of head and shoulders), which drove it down immediately to the weekly support area created by the weekly inf bollinger.
    - but gold for now is bouncing on the 1245 area anticipated, grossly the weekly inf bollinger. On a weekly time scale, Bollinger bands are still contracting, signifying a decrease of volatility.

    Conclusion : gold prices are still drifting slowly lower, they broke the upwards monthly dynamic (except one support left around 1200), broke the supports daily to reach the lower boundaries of a large range neutral area given by the weekly time unit bollinger bands. These bands are still contracting, which means that to me, gold prices are not necessarily convincgly yet about to accelerate down towards 1200. They must first violate the weekly Bollinger Bands. If I see such an acceleration, then imho all hell will break loose on short-term. If not, prices may drift or even rebound once more towards 1300 area.

    I'll bring a few more details with a chart later on.
    I don't take into account "fundamental" news for my analysis.

    ReplyDelete
  8. Hello,

    Here is the chart :
    http://i44.tinypic.com/5pr9kh.jpg

    - on a weekly time unit, Bollinger Inf is here at 1242 to hold prices, Bollinger bands are contracting, i.e no price acceleration on this time unit, rather reduction of volatility.

    - yet, no signal to go long on faster time unit (daily), and a lot of bad signals which make me think that weekly bollinger band may not be enough to support prices for long, which would be bearish for further price action. Signals such as weekly MACD 9 20 7 crossing and reversing just on its propagation axis, both CDur on 2 day time unit going down, MACD not crossing up on the daily time signal, prices still following the downwards weekly pitchfork in red...

    Conclusion : same, no long entry point, Bol Inf weekly is a support, but not very strong, and could give way given the trend which is globally gold prices slowly drifting lower within the weekly red downwards pitchfork.

    ReplyDelete
  9. Just suppose the weakness in "gold" is really weakness in the primary product we are talking about, paper and digital gold credits. The price that Dan does such an excellent job of charting is derived from a market trading gold credits, not physical bullion. What would such weakness mean or portend if this is not simply a cyclical bear move?

    Could the realization be dawning that paper and digital gold credit and physical gold in hand are not the same thing? That paper and digital gold cannot possibly perform when delivery is demanded?

    I think people had better start considering the question. Dan will do fine. He will trade other "asset" classes that will continue to have thriving digital and paper credit markets. Perhaps "gold" will become simply gold and will return to its best function as global reserve asset instead of a plaything for hedge funds, bullion banks, and central banks. If it so, expect Fibonacci support to give way, and much more.

    ReplyDelete
    Replies
    1. I don't know, matrix.
      The question is "when"?
      This is also a trading blog, so I'm trying to share my vision of short term variations of paper gold on the Comex, notwhistanding any revolution on gold based on physical price discovery driven by demand in Asia, failure to deliver, major crisis of confidence in fiat currencies, etc...
      I think Dan mentioned that Comex players are pure paper players and don't give a damn about delivery.
      Watch Jesse Cafe Americain mention that ratio of deliverable Open Interest / Registered stocks is now above 70, yet what? Nothing. Where is the red line? 50? 70? Why not 100? Or 200? If players don't care about standing for delivery, there will be no failure.
      One day, I think we'll go too far and suddenly the system may break.
      Which is why most of my position in gold is PHYSICAL.
      I'm trading a bit of it dynamically, but that's all.
      I guess it's pretty much the same with Dan, I guess he doesn't have 100% of his capital in trading paper markets.
      As to know when it will break, same comments as Dan about the balance of the Federal Reserve. 3 Trillions, then 4, now 5...why not 7 or 10?
      Simply, the odds of an accident are increasing.
      It's not because you didn't have an accident yet by driving 100 mph on a countryside road, then 110, then 120 that you won't have one at 130.
      To me the odds of a major crash and people paying for the current Madness are high enough that I put 1/3 of my cash assets into PMs as an insurance. I assume it fully, still make decent profits with the other 2/3, and at least have some kind of insurance.

      Delete
  10. Looks like general markets handling taper news quite well, gold is another story, might be a waterfall takedown around the corner.

    ReplyDelete
  11. President Obama LIVE SPEECH called "Champions of Change." :-)

    We have some real Champions in Congress and spreading across all of America don't we?

    The News UNIT

    Elijah:

    It sure looks like a waterfall takedown. Any chance you could cut down a stick, cast it in thither and make the metal swim?

    ReplyDelete
    Replies
    1. mmmh I think you're looking for Moses.

      Delete
    2. News Unit and Elijah - actually you are both looking for ELISHA, not Elijah.

      see 2Kings 6

      Delete
  12. The DOW now shrugs off any and all bad news, I don't think there is news bad enough that would have any effect.

    This is what Fed policy has done, do you think Bernanke will care when this bubble bursts and wipes out millions of investor savings world wide?

    ReplyDelete
    Replies
    1. The Wall Street Casino can no longer fail. It's way too big to fail and the CIRCUIT BREAKERS are in.

      I'm wondering if the GLD and SLV will end up doing REVERSE SPLITS? Any ideas on that one?

      Maybe there will be a very unique way of manipulating GOLD and SILVER so they are actually sort of devalued against the dollar before the dollar is also devalued. I think someone already mentioned this in part.

      Delete
  13. Another headline today "Target's profit off 46%"

    XRT should rally hard on that news….I'm not being sarcastic ! It will !

    ReplyDelete
  14. From the comments here and elsewhere, I have not seen such negativity since I got in the gold market in 2008.

    Here we are at 1240, and comments not only portend a $900 low, but now seeing $800 and even lower!

    Seems that buying nearer the low is better than buying near the high, even though it becomes increasingly painful when listening to all the world saying gold is worthless.

    Or what else should I do? Get into the S&P now? Not a chance, even if the train doesn't stop until it hits 2000 or above.

    What people need to do is be at peace with their decisions, or get out. I fail to see why (regardless it being gold, AAPL, S&P, etc) people get such joy in pointing out things are either going to the moon or going to zero.

    ReplyDelete
  15. Target (TGT) revealed on Thursday a 46% tumble in third-quarter profits and a dimmer outlook for full-year profits as the discount retailer grapples with "constrained" consumer spending.

    ....the XRT is rallying on that news.....I really was only kidding in the previous post...unbelievable.

    ReplyDelete
  16. I have long though that 1180 might be tested but I sure hope it holds.

    ReplyDelete