Weekly Update - Gold: Where to Now
By Enrico Orlandini
Jun 6 2007 9:30AM
www.dowtheoryanalysis.com
I have been following gold for better than twenty-five years and I’ll have to admit that I don’t recall seeing investors this discouraged in a long, long time. Maybe never!
I think a lot of it has to do with a complete misunderstanding of what constitutes a bull market as well as how it functions. I read/been sent any number of commentaries about gold over the last month describing how the bull market is seasonal and May markets the time to sell.
Others like Steven Hochberg of Elliot Wave fame have come out and stated that gold is due for a severe decline that will take price down to US $450.00. This is not the first time Mr. Hochberg’s made such a claim. He was wrong before and I’m here to say that he’s wrong now. Then there’s just pure fabrication.
I skimmed an article the other day claiming that the well known gold analysts, the Aden Sisters, called an end to this leg up due to a technical failure. I had just read the article in question entitled “The Bubbling Metals” and the Aden Sisters made no such claim.
When it comes to gold, misinformation is the rule rather than the exception.
If I use my clients as a gauge, you can cut the gloom with a knife. I am the first to admit that this leg up has taken a lot longer to get underway that I had anticipated, but there is no “Great Book of Gold” that you can thumb through in order to come to a quick and easy answer.
Therefore I take pen in hand and try to smooth out some of the bumps. First and foremost, you must understand just why we have a bull market in gold. The reason is actually two-fold:
Presently there is no currency in the world that is backed by anything other than a ‘promise to pay’, and
All the world’s major economies are engaged in a printing war in an effort to have the cheapest currency. A cheap currency leads to cheap prices for exports.
With respect to the latter, the printing party actually originated more than a decade ago in the US and was later adapted by the Japanese in particular and the rest of Asia in general.
Europe jumped onto the bandwagon somewhat further down the road. Currently there is no major economic power whose money supply is increasing at less than 10% per year and the US’s money supply is now increasing at a greater than 14%/year clip. That is an amazing figure for the world’s biggest economy.
Throughout history there have always been a group of investors, better known as the smart money, who have made a habit out of buying cheap and selling dear any significant bull market.
This so-called smart money gets that way by paying very close attention to things like M-3, balance of trade, fiscal deficits, and so on. When they sense that things may get out of balance, they take the appropriate position, and wait for the inevitable. It should be mentioned that they are almost always the first ones to arrive and they are very, very patient.
In the year 2000, the smart money noticed the staggering debt in the US, a world flooded by liquidity, and the very cheap price of gold. Being smart, they did the only thing they could do given the set of circumstances they encountered. They decided to accumulate gold and they went about their business as quiet as a church mouse.
That for all intents and purposes was the beginning of phase 1 in the bull market for gold. In this historical chart for gold
You can see the bottom in late 1999, the retest in 2001, and the slow grinding methodical rise that followed and has continued relatively unabated until today.
This first phase in the gold bull market continued roughly until December 2005 when gold closed above US $490.00/ounce which happened to be the last significant high way back in 1988.
I should mention that all major bull markets consist of three phases.
As I’ve already mentioned, the first phase is where the smart money takes a position and by looking at the historical chart, you’ll see that it lasted five years. That’s a lot of accumulation!
I would also like to point out that gold traded as a commodity during that initial phase and followed a certain pattern.
One of the patterns had to do with seasonality: a rally from September to May and a pull-back throughout the summer. Just because a certain pattern prevailed during one phase doesn’t mean that it will dominate in the next phase.
Once gold broke above the old US $490.00 high, it entered the second phase of the bull market and that is generally the longest of the three phases.
Did you catch that? The second phase is almost always the longest; that means six years or more! The second phase features institutional buying where the Merrill Lynch’s of the world jump on board. Since gold is a special case, it is also highlighted by a transformation: gold ceases being a commodity and becomes money.
Why would gold become money? It’s really not a complicated explanation. There’s just way too much worthless fiat currency floating around out there and more is being Eventually people catch on and look for something tangible that they can get their fingers on, and there is nothing more tangible than gold. It’s stood the test of time and it’s recognized in almost every culture around the world.
Why I can take a gold coin to a tiny little Andean village at 15,000 feet above sea level, with no electricity or telephone, and somebody will recognize it for what it is.
So here we are, about two years into a six year second phase of a three phase bull market for gold.
The third phase, when it finally comes around, will feature the kid who cuts your grass telling you about the great gold stock he just bought.
It is the shortest of the three phases and is also features the blow-off to the upside. It will be the most volatile and the one where the price surges the most.
If I were to guess, I would think that phase two will top out at US $1,200 to $1,600 and phase three will reach US $3,000 per ounce. And that is if the dollar doesn’t fold up its tent and go home.
If that happens, all bets are off and gold could go to the moon.
That’s all well and good, but the average speculator wants to know what’s going to happen this week and not the next decade. Take a look at this weekly chart for gold and I’ll then I’ll give you my thoughts:
There are three things that you can take away from this chart and here they are in order of importance:
There is the bottom band of a long-term trend line (long red line) that has held up for three years and it remains intact.
If you look at the red and blue trend lines, you’ll see that gold is being compressed into a tighter and tighter trading range. Given the fact that this is a bull market, you have an 85% chance of seeing the break out to the upside.
Look at the pair of horizontal green lines that I’ve drawn in. These define a period of consolidation that has lasted almost sixteen months.
So when I add these three up, what do I get?
Simple! You get a market that is on the verge of an upside explosion that will not only catch most speculators by surprise, but it will catch them on the sidelines trying to chase it on the way up.
The next question is: when is this upside explosion about to begin? Here’s my answer: it already has.
Precisely, the move up everyone has been waiting for began on May 24th when gold bottomed at 651.50 and bounced of the red trend line. It is now shaping up for its third and final run at good Fibonacci resistance at 695.5.
What’s more gold will not only break through 695.5, but will run through the May 11, 2006 high of US $730.40 and up to a minimum of $775.00.
That’s been my price target for six months but personally I can’t believe that gold has spent this much time building a base to rally another one hundred dollars. No, I suspect we built this base in order to support a run up to the all-time high of $882.50.
It only makes sense when you stop to think about it. Just about everyone and their brother have thrown in the towel and that’s what a gold bull market does best. It sucks you in when you have no business buying and it pushes you out just when you should be in.
Next stop, gold at $775.00!
Dow Theory Analysis SAC
ebo@dtanalysis.com
Lima, Peru
June 04, 2007
Wednesday, June 6, 2007
Monday, June 4, 2007
Kitco - Commentaries - Peter Grandich
Kitco - Commentaries - Peter Grandich
Grandich Letter Special Alert: One More Shoe to Drop
By Peter Grandich
May 29 2007 2:41PM
www.grandich.com
For quite some time now, I’ve spoken about my belief that the U.S. stock market could not top out until such time that the mood on Wall Street is convinced the Federal Reserve will move, or already has moved, to an easing position. It’s at that point where I believe the last blow-off rally should take place and where I would personally like to short the market. Despite an ever-increasing number of bearish economic, social and political factors, I continue to believe this easing is the needed “last shoe to drop” before we enter a long-term grinding bear market. While I haven’t gone short yet, I do believe investors should use further strength strictly as an opportunity to lighten their load (except for precious metals issues).
Gold – I haven’t witnessed a more pronounced bearish mood in the gold market given the least amount of price decline since this secular bull market began five years ago. Not a day goes by where I don’t read yet another formerly bullish forecaster painting a gloomy outlook for gold for the foreseeable future. The mood among retail speculators is so thick with pessimism you can cut it with a knife. Yet, here we sit this morning with gold still north of $650 and above key support of $640.
One shouldn’t simply discard this marked increased in bearishness. For starters, gold is now in the historically weakest seasonal period of May through August. It’s also been absolutely hammered – not only by aggressive central bank selling, but by a continuing pattern of strange selling on the Comex that almost always is concentrated around the 11 a.m. time frame. The fact that this is when most of the physical buying worldwide shuts down until later in the evening in Asia is no coincidence.
It’s easy to see why gold bulls like me may be scratching their heads wondering why the bullish boat has thinned out, especially when you read so much double-talk like we are currently hearing from a so-called gold expert on one of the most read gold bullion websites. This gentleman can not only talk well from both sides of his mouth, but I often wonder if he and I are looking at the same market?
Make no mistake about it; we remaining gold bulls are on the defensive until such time that gold breaks above the all-important $700 level. Gold must hold above $640 or we are all but certain to see a test of $600 or even $575. (Please put down the gun). But even if that was to occur (though extremely unlikely), the fundamentals remain solid for gold and by sometime in 2008 (if not sooner), we should be testing the old highs of around $875.
I continue to like the bullish side of silver, platinum, palladium, uranium and cobalt. I’m now firmly on the bearish side of most base metals.
Oil – With hurricane season upon us and a continuing thirst for gasoline, there’s little reason to think oil can see much downside below $60 and it wouldn’t surprise me to see a spike back to and beyond last year’s highs.
U.S. Dollar – Despite all the propaganda the “Don’t Worry, Be Happy” crowd on Wall Street gives to the financial media, rest assured the Fat Lady is not only in the building, but Last Rites have been administered to Uncle Sam’s currency. Put a fork in it.
Mining and Exploration Shares – What began as a serious correction in the uranium stocks became a serious correction (or even a mini-bear market) among producers and juniors. Very few issues have escaped this and our list of companies is no exception. Because I don’t believe the gold market is going to get much worse before it gets better, I’m personally going to ride this sluggish time frame out. I believe most of the surprises in precious metals and related equities should be to the upside for the foreseeable future.
GRANDICH PUBLICATIONS, LLC.
P.O. Box 243 o Perrineville, NJ 08535
www.Grandich.com
phone: 732-642-3992
email: Peter@Grandich.com
****
Grandich Publications, Inc. provides research, analysis, and investor relation services for certain of the companies featured in the articles appearing in its publications (each a “Featured Company”). Featured Companies may pay fees to Grandich Publications, Inc. that may include securities-based compensation that would appreciate if the company’s stock price rises. Accordingly, there is an inherent conflict of interest involved that may influence our perspective and provide an incentive for publishing favorable information with regard to a Featured Company.
Grandich Publications has been given the right to exercise stock options. A complete list of companies and options and share price (in Canadian dollars) is listed on the website, www.Grandich.com. Furthermore, most companies have entered into agreements to pay Grandich Publications a monthly fee.
Important Disclosure
Grandich Publications is not registered as a securities broker-dealer or investment adviser with the U.S. Securities and Exchange Commission or any state securities regulatory authority. Specifically, Grandich Publications relies upon an exemption from the registration requirements under the Investment Advisers Act of 1940, as amended (the "Advisers Act") provided for in Section 202(a)(11)(D). This exemption is available for the publisher of any "bona fide financial publication of general and regular circulation." Grandich Publications is not responsible for trades executed by subscribers to the services based on the information included in the website and any other publications from Grandich Publications (collectively, the "Publications"). The Publications and the information contained therein do not represent individual investment advice or a recommendation to buy or sell securities or any financial instrument nor are they intended as an endorsement of any security or other investment. Furthermore, the Publications do not constitute an offer or solicitation to buy or sell any securities or individualized investment advice. The Publications are intended to be utilized solely by financial professionals.
Any information contained in the Publications represents Grandich Publications' opinions, and should not be construed as personalized investment advice. Grandich Publications cannot assess, verify or guarantee the suitability of any particular investment to any particular situation and the reader of the Publications bears complete responsibility for its own investment research and should seek the advice of a qualified investment professional that provides individualized advice prior to making any investment decisions. All opinions expressed and information and data provided therein are subject to change without notice. Grandich Publications, its officers, directors, employees and/or affiliates, may have positions in, and may, from time-to-time make purchases or sales of the securities discussed or mentioned in the Publications.
Grandich Publications does not make any representations as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to Grandich Publications' web site or incorporated herein, and takes no responsibility therefore.
The foregoing discussion contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 (the "Act"). In particular, when used in the preceding discussion, the words "plan," "confident that," "believe," "scheduled," "expect," or "intend to," and similar conditional expressions are intended to identify forward-looking statements subject to the safe harbor created by the Act. Such statements are subject to certain risks and uncertainties and actual results could differ materially from those expressed in any of the forward-looking statements. Such risks and uncertainties include, but are not limited to, future events and the financial performance of the Company which are inherently uncertain and actual events and/or results may differ materially.
Third party statements contained herein and information contained in any source cited herein are not endorsed by or adopted by Grandich Publications, LLC, nor has their accuracy been verified by Grandich Publications, LLC.
Grandich Letter Special Alert: One More Shoe to Drop
By Peter Grandich
May 29 2007 2:41PM
www.grandich.com
For quite some time now, I’ve spoken about my belief that the U.S. stock market could not top out until such time that the mood on Wall Street is convinced the Federal Reserve will move, or already has moved, to an easing position. It’s at that point where I believe the last blow-off rally should take place and where I would personally like to short the market. Despite an ever-increasing number of bearish economic, social and political factors, I continue to believe this easing is the needed “last shoe to drop” before we enter a long-term grinding bear market. While I haven’t gone short yet, I do believe investors should use further strength strictly as an opportunity to lighten their load (except for precious metals issues).
Gold – I haven’t witnessed a more pronounced bearish mood in the gold market given the least amount of price decline since this secular bull market began five years ago. Not a day goes by where I don’t read yet another formerly bullish forecaster painting a gloomy outlook for gold for the foreseeable future. The mood among retail speculators is so thick with pessimism you can cut it with a knife. Yet, here we sit this morning with gold still north of $650 and above key support of $640.
One shouldn’t simply discard this marked increased in bearishness. For starters, gold is now in the historically weakest seasonal period of May through August. It’s also been absolutely hammered – not only by aggressive central bank selling, but by a continuing pattern of strange selling on the Comex that almost always is concentrated around the 11 a.m. time frame. The fact that this is when most of the physical buying worldwide shuts down until later in the evening in Asia is no coincidence.
It’s easy to see why gold bulls like me may be scratching their heads wondering why the bullish boat has thinned out, especially when you read so much double-talk like we are currently hearing from a so-called gold expert on one of the most read gold bullion websites. This gentleman can not only talk well from both sides of his mouth, but I often wonder if he and I are looking at the same market?
Make no mistake about it; we remaining gold bulls are on the defensive until such time that gold breaks above the all-important $700 level. Gold must hold above $640 or we are all but certain to see a test of $600 or even $575. (Please put down the gun). But even if that was to occur (though extremely unlikely), the fundamentals remain solid for gold and by sometime in 2008 (if not sooner), we should be testing the old highs of around $875.
I continue to like the bullish side of silver, platinum, palladium, uranium and cobalt. I’m now firmly on the bearish side of most base metals.
Oil – With hurricane season upon us and a continuing thirst for gasoline, there’s little reason to think oil can see much downside below $60 and it wouldn’t surprise me to see a spike back to and beyond last year’s highs.
U.S. Dollar – Despite all the propaganda the “Don’t Worry, Be Happy” crowd on Wall Street gives to the financial media, rest assured the Fat Lady is not only in the building, but Last Rites have been administered to Uncle Sam’s currency. Put a fork in it.
Mining and Exploration Shares – What began as a serious correction in the uranium stocks became a serious correction (or even a mini-bear market) among producers and juniors. Very few issues have escaped this and our list of companies is no exception. Because I don’t believe the gold market is going to get much worse before it gets better, I’m personally going to ride this sluggish time frame out. I believe most of the surprises in precious metals and related equities should be to the upside for the foreseeable future.
GRANDICH PUBLICATIONS, LLC.
P.O. Box 243 o Perrineville, NJ 08535
www.Grandich.com
phone: 732-642-3992
email: Peter@Grandich.com
****
Grandich Publications, Inc. provides research, analysis, and investor relation services for certain of the companies featured in the articles appearing in its publications (each a “Featured Company”). Featured Companies may pay fees to Grandich Publications, Inc. that may include securities-based compensation that would appreciate if the company’s stock price rises. Accordingly, there is an inherent conflict of interest involved that may influence our perspective and provide an incentive for publishing favorable information with regard to a Featured Company.
Grandich Publications has been given the right to exercise stock options. A complete list of companies and options and share price (in Canadian dollars) is listed on the website, www.Grandich.com. Furthermore, most companies have entered into agreements to pay Grandich Publications a monthly fee.
Important Disclosure
Grandich Publications is not registered as a securities broker-dealer or investment adviser with the U.S. Securities and Exchange Commission or any state securities regulatory authority. Specifically, Grandich Publications relies upon an exemption from the registration requirements under the Investment Advisers Act of 1940, as amended (the "Advisers Act") provided for in Section 202(a)(11)(D). This exemption is available for the publisher of any "bona fide financial publication of general and regular circulation." Grandich Publications is not responsible for trades executed by subscribers to the services based on the information included in the website and any other publications from Grandich Publications (collectively, the "Publications"). The Publications and the information contained therein do not represent individual investment advice or a recommendation to buy or sell securities or any financial instrument nor are they intended as an endorsement of any security or other investment. Furthermore, the Publications do not constitute an offer or solicitation to buy or sell any securities or individualized investment advice. The Publications are intended to be utilized solely by financial professionals.
Any information contained in the Publications represents Grandich Publications' opinions, and should not be construed as personalized investment advice. Grandich Publications cannot assess, verify or guarantee the suitability of any particular investment to any particular situation and the reader of the Publications bears complete responsibility for its own investment research and should seek the advice of a qualified investment professional that provides individualized advice prior to making any investment decisions. All opinions expressed and information and data provided therein are subject to change without notice. Grandich Publications, its officers, directors, employees and/or affiliates, may have positions in, and may, from time-to-time make purchases or sales of the securities discussed or mentioned in the Publications.
Grandich Publications does not make any representations as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to Grandich Publications' web site or incorporated herein, and takes no responsibility therefore.
The foregoing discussion contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 (the "Act"). In particular, when used in the preceding discussion, the words "plan," "confident that," "believe," "scheduled," "expect," or "intend to," and similar conditional expressions are intended to identify forward-looking statements subject to the safe harbor created by the Act. Such statements are subject to certain risks and uncertainties and actual results could differ materially from those expressed in any of the forward-looking statements. Such risks and uncertainties include, but are not limited to, future events and the financial performance of the Company which are inherently uncertain and actual events and/or results may differ materially.
Third party statements contained herein and information contained in any source cited herein are not endorsed by or adopted by Grandich Publications, LLC, nor has their accuracy been verified by Grandich Publications, LLC.
Sunday, June 3, 2007
This is how usually you start...
This is how over 50% of traders start their position.
First, they guess which way the market is going to go. Now as surprising as it may seem there are many traders who do just that. They take a look at a chart or some news and then decide if they should buy or sell.
If they make money consistently then it is hard to argue that this is the wrong way to trade the market. The problem of this type of trading is that it is almost impossible to reproduce results consistently.
In other words, the trader that trades by instinct can never really pass on his knowledge, as there is no clear rule that he applies to the market on a regular basis. Not many of them have gone the distance and are there year after year.
Traders who apply a method to their trading inevitably have better results.
If you use the same criteria to each trade, then you at least have a reference point from which to work. If you are losing, you can then change specific things in your decision making process in order to find the right criteria.
By using a method in your trading, you are moving towards the scientific approach and just as a scientist will carefully research and record each experiment so should the trader trying to perfect the method he is using.
If you apply XYZ as your reason for entering a trade and you can see after a predetermined amount of trades that it is not working; then you can change X, Y or Z until you find something that does work?
Typically the method trader has researched a particular theory. You have to back test (applying the theory to historical charts) and come up with indicators, tools or some other method of determining the entry and exit criteria.
If at the end of his research you find that you can make money you will then apply that method to the market.
As you still have to make the decision to enter or exit a trade there is still the human element to consider.
Even though your method may tell you to enter a trade, for some psychological reason you have decided not to take the trade. There lies the weakness of the method trader. Even though you know you should enter or exit a trade you don't because at that particular moment in time some voice inside you tells you not to do it.
This is how you can improve your trade immediately....
The solution is to make it mechanical as much as possible.
There has probably been more written about mechanical trading systems than any other topic in trading. The premise of mechanical systems is that a particular theory he's been back tested over a long period of time and has consistently made money.
There is no emotion involved with the decision making process at all. If the system says buy the security then you buy or an order is automatically done for you.
This takes away all the emotional UPS and Downs and all you have to do is to buy the security and supply the money.
Trading is just like life. There is no correct way to trade only what suits you in your own tune and your own strategies.
As long as you include these elements in your trading system.
They are:
a) Your trading plan.
b) Loss management strategies.
c) Your execution strategies.
Next issue:
Trade the stock market with trend methodology.
If you have any other questions, please contact
support@online-trading-centre.com
First, they guess which way the market is going to go. Now as surprising as it may seem there are many traders who do just that. They take a look at a chart or some news and then decide if they should buy or sell.
If they make money consistently then it is hard to argue that this is the wrong way to trade the market. The problem of this type of trading is that it is almost impossible to reproduce results consistently.
In other words, the trader that trades by instinct can never really pass on his knowledge, as there is no clear rule that he applies to the market on a regular basis. Not many of them have gone the distance and are there year after year.
Traders who apply a method to their trading inevitably have better results.
If you use the same criteria to each trade, then you at least have a reference point from which to work. If you are losing, you can then change specific things in your decision making process in order to find the right criteria.
By using a method in your trading, you are moving towards the scientific approach and just as a scientist will carefully research and record each experiment so should the trader trying to perfect the method he is using.
If you apply XYZ as your reason for entering a trade and you can see after a predetermined amount of trades that it is not working; then you can change X, Y or Z until you find something that does work?
Typically the method trader has researched a particular theory. You have to back test (applying the theory to historical charts) and come up with indicators, tools or some other method of determining the entry and exit criteria.
If at the end of his research you find that you can make money you will then apply that method to the market.
As you still have to make the decision to enter or exit a trade there is still the human element to consider.
Even though your method may tell you to enter a trade, for some psychological reason you have decided not to take the trade. There lies the weakness of the method trader. Even though you know you should enter or exit a trade you don't because at that particular moment in time some voice inside you tells you not to do it.
This is how you can improve your trade immediately....
The solution is to make it mechanical as much as possible.
There has probably been more written about mechanical trading systems than any other topic in trading. The premise of mechanical systems is that a particular theory he's been back tested over a long period of time and has consistently made money.
There is no emotion involved with the decision making process at all. If the system says buy the security then you buy or an order is automatically done for you.
This takes away all the emotional UPS and Downs and all you have to do is to buy the security and supply the money.
Trading is just like life. There is no correct way to trade only what suits you in your own tune and your own strategies.
As long as you include these elements in your trading system.
They are:
a) Your trading plan.
b) Loss management strategies.
c) Your execution strategies.
Next issue:
Trade the stock market with trend methodology.
If you have any other questions, please contact
support@online-trading-centre.com
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