Sunday, February 22, 2009

Gold at $1000- then and now

Gold first moved above $1000 in March 2008. The chart below gives us an interesting perspective on gold then and now. Specifically note the arrangement of the simple moving averages (SMA) at the time gold crossed above $1000 in March 2008 and in February of this year.

Too many gold newsletter writers got caught with their pants down predicting the end of the financial world in March 2008, urging readers to get on board and buy gold. The ensuring correction made fools of most of them. As gold moved aggressively above $950 I noticed several gold bug's alerting readers that gold had moved too high too fast and that caution was in order. I think these predictions are self-serving more than anything else. The technical picture is nothing like it was in March 2008 for Gold, and I suspect they will be the first to trumpet their cautionary calls should gold correct down anywhere below $950.

Gold may just crash back down to earth in the event a bank-bailout proposal is viewed as viable by the market, and a perceived stability is entrenched in the public's minds as they abandon safe-haven buying of treasuries and gold. But the alternative is equally troubling for gold bugs: What if all the cautionary tales are just that? Tales. Being stung so often by gold's oxymoronic behavior, are those most vested in gold about to sell the first sign of weakness and miss a much larger advance? Will the oft-predicted explosion in the gold price that catches both shorts and those in cash by surprise come to fruition?

The technical picture is looking better each day fo gold and even the gold shares. But Im suspect of relying soley on TA at this time considering the magnitude of the markets structural problems that we are only topically aware of. What lies beneath multiple levels of bank assets is a mystery to all but the most well studied and informed, and even they seem to be either quiet or confused about the implications.

Contrarians were a popular bunch for some time, and many still profess to be contrarian without realizing the irony inherent to associating one's self with a group that is supposed to move against the herd. Contrarians are becoming a herd unto themselves. Citing examples of gold reaching saturation levels in the media are generally baseless. There have been ads, commentary and discussions of gold for years on both the mainstream and alternative media sites.

The chart below gives what I believe is the best snapshot into the popularity of gold at any given time. provides hit counts for various websites, and Ive posted the daily hit count for the most popular gold site on the web: Traffic to Kitco has only modestly increased as part of a general uptrend since the end of 2008. This tells me that there is no "gold-fever" per se in the media other than the "cash 4 gold" ads during the Superbowl.

Its always difficult to call considering gold has moved above $900 so quickly. Talk of "momentum" buyers or of "sideline cash" moving to gold have no basis in reality as there is always a seller for every buyer. Momentum studies tell us how the chart is moving but not how long it can continue in any particular direction. Crossover's occur quickly on many indicators and only look prescient in hind-sight. The TA for gold does show it is extended in many ways, but not in others on a comparative basis. Its been 1 year since gold last kissed $1000. It would seem too easy to expect a pull-back from the prior highs simply because they were the prior highs. I also suspect it would be too easy for gold to pull back from here and take a short rest prior to another advance. That is what many expect and that is why I dont believe it will work out as neatly.

Should the US Dollar continue its slide downward that began late last week, golds behavior will give us an illuminating sign of whats to come. Gold has advanced in the face of US Dollar strength for long enough this year to suggest a massive change overhead. Will it advance against US Dollar weakness?

If it does, then
Jim Sinclair's recent prediction may well come true sooner than later:

The third time above $1000 means $1650 and I believe that Alf will take the award for being most correct.

The following is the schedule for Gold:

Gold will try $1060.
Then $1224.
Then $1650.

Its going to be an interesting few months ahead.

Good luck,

J aka dr. cosa

Thursday, February 12, 2009

Dow Theory on Gold

Richard Russell of The Dow Theory Letters on Gold

thanks to for this great contribution from a market veteran and long-time proponent of gold


Fear and Greed

Richard Russell
Dow Theory Letters
Feb 12, 2009

February 11, 2009 Gold -- There's only one item that is bought through both fear and greed. That item is gold. Are you worried about the viability of the dollar? Then buy gold -- (fear). Are you afraid that the gold market is getting away from you? Then don't wait -- buy gold (greed).

Those subscribers who have heeded my advice -- "buy gold." They are doing OK today. Of course, for years I advocated buying gold coins and hiding them away and never looking at them or thinking of selling those little beauties. Now if you want gold, you have to buy "paper gold" in the form of GLD. Which is probably OK. Below we see an up-dated chart of GLD. And we see the breakout today at 92.29. This completes a huge base, which started at the 69 box and since has been building and building.

Note the numerous down-columns, these are the "wipe-outs" which periodically scare people OUT of their gold. Today, with the upside breakout at the 93 box on the P&F chart, we're forced to buy gold in the 944 (April futures) area. For those who missed out on gold when it was in the 700s and 800s, this is a scary proposition. So question -- is it too late to buy GLD or high-premium coins if you can find them?

As I see it, the frenzy, the speculative phase of gold, the rush of a frightened public -- lies ahead. Big bull markets always find a way to keep you frightened and OUT. Big bull markets are devils with no conscience -- to get in you have to "close your eyes, and just do it." Not easy, but in this business nothing is easy except losing money. Which is why I've always loved the gold coins. You buy 'em, you're not tempted to trade 'em, they look great and they feel great. And they're not made of paper, nor can they be created with a computer. Ultimately, "There's no fever like gold fever." And I'm beginning, just beginning, to feel the fever now. When I look at the chart, I can sense the fever rising.

Fiat paper fans and the Fed denigrate gold. They fear gold and despise it. They prefer the Federal Reserve Notes that they can manufacture at will. But as gold rises, they must face the fact that the Notes they manufacture are being devalued. You see, for thousands of years gold has been the standard against which all assets and currencies are measured. When the big bear arrives and everything faces the fire, "gold will be the last man standing, not dollars, not political talk or Presidential promises -- the only survivor will be the eternal and ultimate safe asset -- gold.

Notice the difference in gold trading during the day? Very little profit-taking. Buyers are buying gold to hold rather than to grab intra-day profits.

Richard Russell
website: Dow Theory Letters

Monday, February 9, 2009

Moving Average Study of Gold: simple stuff

I get easily overwhelmed with data points and indicators when looking at charts, in hopes of unlocking a magical method of telling the future.
It doesnt exist, so in the meantime I use good old fashioned moving average studies to take a top-down look at gold and consider what they are telling me. Short term I cant say, I mean everything points to a downward push for a few days or weeks considering how far and how fast gold has risen. But beyond that, looking at the real meat of any potential moves in gold, this chart gives me all I need to feel good about gold's prospects going forward.



Friday, February 6, 2009

Gold Trader's Diary

2 current positions:

crude oil position via HOU.TO (crude oil double bull on the TSX):

when can crude oil mount a rally? seems like it wants to move back towards the mid-30's before something can happen. i wonder if too many people believe we've seen the bottom in crude simply because supply/demand fundamentals will cause a decrease in production, which would lead to higher prices...

suppressing the oil price benefits americans the most, and hurts many of america's traditional foes: russia, iran, venezuela. it is no coincidence that any economic stimulus would be all the more effective alongside the massive tax-like cut that is lower oil/gas prices.

its almost too coincidental not to be part of any US administration's plans...

if you are a regional producer of crude oil, relying on it for the majority of your state's income as many OPEC/non-OPEC nations are, you would pump more oil in the case of falling prices to make up for lost revenues. its not so much a supply/demand issues as it is a needs/wants issue. they need money and want it now or the very foundations of many regimes will be toppled.

it worsens the actual situation but empires, nations, communities and individual's have a habit of sacrificing the later for the now. i suspect falling oil prices beget more drops in prices as more supply enters the market. russia, iran, venezuela and other states are crippled by current oil prices.

so will oil find a floor in the 30's simply because producers will stop pumping?

im not sure. they may, but w/ the sheer volume of oil pumped by state-owned oil companies (or shell corporations that are proxies of their oligarchical state-leaders) i find it difficult to envision them cutting off their hands to save their arms because of plain old fashioned short-sightedness.

(the same short-sightedness that got us into this mess in the first place non?)

a great article about Russia's behavior on the global stage with respect to oil and energy can be found at the site of the brilliant William Engdahl titled:
Putin and the Geopolitics of the New Cold War: Or what happens when Cowboys don`t shoot straight like they used to ...


gold positions via HGU.TO (gold miners double bull on the TSX)

gold: doing its usual morning crash. ive run out of things to say about gold and gold stocks for the moment. as ive said before there are bullish medium/long term set up's happening on the charts. but TA is like T and A, great to look at and alot of fun, but not a sustainable trait for a bountiful relationship..... their continued under performance vs. gold could be a reality of life going forward, or a sign that gold is unable to really break through its old highs with any real conviction just yet.

the USD is still looking somewhat strong, dont even look at the charts with exponential moving averages because they look dam good, but so does the gold chart. its odd.

im not liking golds action at the moment. but what else is new. i was loving it for some reason just a day or 2 ago, but it truly is a case of 3 steps forward and 2 steps back, sometimes 3 steps back....

HGU is really just UGH!!! in disguise

a great article by the always lucid Steve Saville posted on Kitco gives a thoughtful analysis of the issue on most goldbug's minds: inflation vs. deflation.

(though the question on my mind is: does it really matter?)

The Inflation-Deflation Debate

By Steve Saville
Feb 3 2009 9:17AM

For many years we have been expecting inflation (growth in the supply of money) and nothing but inflation as far as the eye can see, but there have been times, such as the past 12 months, when we have felt more affinity with deflation forecasters than with most other inflation forecasters. The reason is that monetary inflation, when measured correctly, was minimal during the first half of 2008 and during the two preceding years, thus setting the stage for a US$ rebound and large price declines in the investments that had been bid up to astronomical heights.

Based on our observation, a lot of confusion on the inflation/deflation issue is caused by the lengthy and variable time delays between changes in the monetary trend and changes in prices. It will often be at least 2 years before the effects of a major change in the monetary trend start to become apparent in the prices of commodities and everyday goods and services. Consequently, during the first 2 years of a new monetary inflation cycle the outward evidence will often point to deflation (even though the inflation threat is rising), and for 2 years following the END of an inflation cycle it will seem as if the inflation threat is growing (even though it is falling).

As outlined below under "Current Situation", a new inflation cycle has almost certainly begun. However, with one notable exception the price-related evidence will probably favour the deflationists until at least 2010. The notable exception is the gold price. As we mentioned in a few commentaries last year, the gold price is the one price that's likely to commence a major upward trend in the early part of a new inflation cycle. The reason is that the gold market is dominated by large speculators who take positions in anticipation of the eventual/inevitable effects of the new monetary trend.

To further explain, the gold market is a very different 'kettle of fish' to other commodity markets. In the gold market the "commercials" are generally clueless because garden-variety commodity supply/demand fundamentals, such as changes in mine supply and industrial/commercial demand, have almost no effect on gold's price trend. Instead, gold's price trend is determined almost totally by investment demand, which is, in turn, driven by the outlook for things such as interest rates, credit spreads, financial asset valuations, money-supply growth, inflation expectations, and exchange rates. Moreover, the people who tend to have the most foresight when it comes to macro-economic phenomena are speculators who have survived and prospered in the financial markets over a long period of time.

In sum, even though the inflation threat has begun to increase the deflationists will probably look right for at least another year. They rarely look right, so we shouldn't begrudge them their relatively brief time in the sun.

Current Situation

We agree with much of the analysis presented by the well-known deflationists. The main point of contention revolves around the ability of the monetary authorities (the Fed and the Treasury in the US) to keep the total supply of money growing. Our view has been, and continues to be, that the Treasury-Fed tag team has the power to promulgate monetary inflation under almost any economic circumstances and will use this power. The bond market could eventually impose a practical limitation on the government's ability to inflate because increasing the money supply becomes counter-productive once the bond market begins to anticipate rapid currency depreciation, but if price-related evidence continues to favour the deflation view over the coming year then this limitation will not arise anytime soon.

The case is not yet closed, but the evidence presented to date supports our view. For example, the monetary base has expanded at an astronomical pace over the past five months. Mike Shedlock has attempted to counter this by pointing out that a sharp increase in the adjusted monetary base (AMB) also occurred during the early 1930s, but the St. Louis Fed's updated long-term chart of the AMB shows that the recent increase has been many times greater than anything during the 1930s. In any case, the overall monetary situation today could hardly be more different to the early 1930s. During the early 1930s the Fed increased the monetary base, but the total supply of money plunged. The current situation is reflected on the following chart, which shows that the year-over-year rate of increase in the True Money Supply (TMS) has reached 10%. Note that TMS does not include bank reserves held at the Fed; it represents money available for spending. The fact is that despite the deflation hysteria there is 10% more money in the US economy today than there was at this time last year.

Steve Saville


good luck gang,