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

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