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Author: MDCigan Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 41314  
Subject: Re: Gold - Updated TA Date: 8/20/2012 12:19 PM
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Any updated thoughts on Gold. The ascending triangle and the secular bull of last 3 or 5 year period is gone and we are now in sideways consolidation (I am pretty sure, I have no idea what the above means!).

The last time Gold had a lengthy sideways move is from Apr-06 to Aug-07, and then the world started collapsing and printing presses worked non-stop and gold hit the peak.

Is gold now tied to QEIII? If there is no QEIII are we looking at Gold breaking down 1500 mark? It bounced off of that low multiple times in May and then recently at 1555.

There is no catalyst to buy gold unless we are assured of another round of easing by FED.

Interested in your thoughts.


CM,

Actually, pretty good read there for having no idea what it means.... :) although by my definition the secular bull starts in 2001, not 3 or 5 years ago and is still ongoing until proven otherwise. Right now, we are only 16% off the 1924 peak achieved in Sep 2011. How many times did the S&P 500 drop 15%+ during the secular bull of 1982-2000?

At present, I am in neutral wait and see mode with gold to see which way this sideways consolidation resolves itself. I currently have no positions in gold at all, no long-term investment position, and no short-term trading position. I do have a short position in silver that is at a moderate loss as I shorted at 26.89 expecting an imminent breakdown below the $26 support level, but it looks like I am going to get stopped out this week. Fundamentally, I'm surprised to see silver hold up this well given that it is an industrial metal as well, but depending on what happens the rest of this week, it may break above the downtrend line off the $50 top of April 2011. Probably a mistake on my part to trade along with mass sentiment. I can't find the chart now, but it basically showed that bearish sentiment on silver was at the same level as October 2008.

I haven't been able to get the gold sentiment numbers recently, but I'd guess they are probably close to the silver numbers so sentiment is likely very bearish which is contrarian bullish. I think it is also bullish that the 1525-1535 support level has held and that over the last 3-4 months price has slowly been working higher putting in a sequence of higher lows. Also, on the bull side is the fact that the signal line crossed above on the weekly MACD. In my experience, quite often, after you've had an extended sell-off, correction, or sideways movement where the weekly MACD was negative for many months, once the signal line flips positive, it very often means the bottom has been put in. That said, for me it would have to go above the ZERO line to be in official bull mode.

Now for the bearish/neutral indications. There is still a ton of overhead resistance to get past. I like Mebane Faber's 10-month moving average rule as an indicator whether or not to be in or out of an asset class although I'll often use the 40-week moving average instead because it will be quicker to give a buy or sell signal. I don't like the 200-day moving average because I've noticed WAY TOO MANY situations where you get false signals of either 1-2 days above or below that would trigger action, but turn out to be false signals that don't trigger on the weekly or monthly moving average. The S&P 500 from June1-June 5 is a good example of this difference. So currently gold is at 1619 and the 10-month moving average is at 1649 and it has been trading below for 6 months. I'd want to see a monthly close above that 10-month moving average or 1-2 weekly closes above the 40-week moving average. More importantly in my view, is the downtrend line that connects the Sep-11 1924 top and the Feb-12 1793 top. I am a huge believer in the message trendline breaks send. This trendline currently intersects around 1660. I'd want to see that decisively taken out and then holding that for several days to a few weeks.

Closing above the 10-month moving average and a trendline break to the upside would be enough for me to reestablish my long-term position. I would be buying back in higher then I sold, but that is OK. I don't care about 5-10 points one way or the other on GLD...I want to be on the right side of the next 30-100 point move.

I think you are right that the next catalyst will be QE3 or whatever they call it or whatever extraordinary policy measure central banks decide to put in action. We've been on hold here a long time. The Fed hasn't done anything for awhile, and the ECB has pretty much been talking nonstop for several months with zero action. The way I see it at the end of the day the only answer to the debt problem is either repudiation of the debt or monetization of the debt. I believe the latter will be the choice, but it will be done in the least transparent, most obscure way possible. It is important to keep most people in the dark that their savings are being devalued. Financial repression will continue and both short-term and long-term interest rates will stay low I think. In my view the evidence clearly indicates the Fed can keep long-term rates low as well if they want, the idea of "bond vigilantes" driving U.S. long-term interest rates higher I think is a myth. All of those factors are bullish for gold in the very long-term.

I've learned though to generally wait for the charts to confirm and affirm my interpretation of the fundamentals. It is a small price to pay to generally avoid being horribly wrong. A good example of that is the experience of ATPG the last 12-18 months.
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