Gold

Gold closed at $631.43 (continuous contract) down $15.83 for the week or –2.4%. This coming week’s action will tell if gold is going to breakdown or breakout. Presently, it is leaning to the downside, but hasn’t yet confirmed. We await further evidence – either way: up or down.

The following is mere speculation, but we see gold holding here a bout’s and rallying up one last time before seriously testing the June low. Then if the June low holds (which we expect) a new intermediate term advance will begin. 

There are obviously many other scenarios, this is the one we see most probable. Gold could simply break down from here and go on to test the lows of June, which will either hold or not. Or gold could rally from right here towards the high from May. 

And there are many other choices as well. We are not predicting, we are simply stating what we think is most probable. We accumulate positions that assume the worst will occur. That way we are only pleasantly surprised, as we are getting too old to take rude awakening’s in the middle of the night.

Gold Continuous Contract Daily

Notice on the chart above gold is sitting on the bottom trend line of a symmetrical triangle. The trend line is either going to act as support, and gold moves off and up next week, or gold will break down through it convincingly, and it will become resistance. 

Also notice at the bottom of the chart the comparisons between gold and the US Dollar, the Euro, the Yen, and lastly with silver. 

Some technical damage was done this past week, but not enough to warrant a change of the trend - just yet. We look for a move down on the open Monday morning and a reversal up that closes positive. We shall soon see. 

Silver Continuous Contract

Silver closed the week down –0.47 cents or –3.79%. Last week’s low for silver was 11.43. Silver’s MACD and Histograms are looking more positive and at the bottom of the chart silver can be seen to be outperforming gold at the moment. 

HUI Gold Bugs Index

The HUI Index is pretty much in the same position that gold is in. It too is sitting right at its bottom trend line of a symmetrical triangle. It soon has to make up its mind which way it is going to break: down or up. 

With Friday’s action the index appears to be leaning toward the downside, however, markets always do what confuses the most. Consequently we hold off making any judgment until a break one way or the other is confirmed. 

XAU Gold & Silver Index

The XAU shows a symmetrical triangle pattern as does the HUI and Gold, however, the XAU may also be showing that which should not be overlooked and forgotten. 

Perhaps the dominant chart feature is not the symmetrical triangle but a trading zone bordered by May’s high at 171 and June’s low at 119. From top to bottom that equals a 52 point spread. The index is presently sitting at 142.25 a bit above 50% of the spread. 

Next below we are going to show a chart of the US Dollar compared to the South African Rand. The reason why we are choosing this chart for comparison is because the exchange rate between the US Dollar and the SA Rand has significant repercussions on our positions in South African Mining Stocks, specifically Gold Fields (GFI) and Harmony (HMY).

If the US Dollar is outperforming the Rand then there is the potential for an increase in profits, as gold is priced in US Dollars, while the cost of production of the gold is priced in SA Rands. 

As the chart shows the rand has been outperforming the dollar until this year. Now the dollar seems to be taking over, which will soon be determined by the near future price action that occurs. 

USD/ZAR

From May to almost July the dollar outperformed the Rand, which was a significant change of the then prevailing trend. From July until the present the Rand has been winning the contest. Such is the way of markets – a dual between buyers and sellers.

But we suspect (we don’t know nor are we predicting) that the US Dollar is about to have a period of strength while the SA Rand has a period of weakness. 

If this occurs while gold is rising it will be very bullish for the SA Gold Stocks. The operative word is: IF

The last three charts are of gold stocks that have been or are in our personal portfolio: I Am Gold, Goldfields, and Harmony Gold (the last 2 are South African gold stocks). Recently we sold IAG and just purchased more GFI and HMY. 

IAMGOLD Corp. (IAG)

That’s one heck of a good looking chart and stock. Then why did we sell it? Because we had bought it at a price low enough to warrant the booking of profits that gave a good return for the short time we held the stock. 

The chart is picture perfect, which is another reason why we sold the stock. That rise at the end is terrific and we enjoyed every minute of it, but we also know it looks like a rocket taking off. It is a parabolic rise almost straight up and cannot and will not be sustained. 

We would better take the money and run before it starts back down to earth. If it goes higher – so be it. It will do it without us aboard.

Gold Fields Ltd. (GFI)

So why did we buy GFI? The chart doesn’t look all that great does it? But look closer, perhaps there is a diamond in the ruff. 

GFI sits just above its 200 dma. It may perhaps go down for a visit or even lower. We know that and we plan on buying more if it goes down to those levels. We have been trading in and out of goldfields for years now. It has been very good to us. 

What caught our eye is the bottom of the chart – the Williams %. It is crossing the –80 line, which is oversold territory. You can see where GFI has crossed over the line several times. Note that it doesn’t stay there for too long, but turns back up and makes a new rise. 

That is why we bought GFI. That and the strong possibility that the US Dollar is going to outperform the SA Rand, which would strongly affect GFI’s profits or bottom line. We should know soon enough, as time will tell. 

Harmony Gold Mining (HMY)

Harmony is basically in the same boat as GFI, although HMY has already broken below its 200 dma. The Williams % is well below –80 and RSI is ready to hit 30 – both are oversold readings. 

We believe that the risk to reward ratio for this stock over the next 6-12 months greatly favors the reward – at least it does for us in our own personal portfolio. Each and every investor must do their own due diligence and decide what is best for them. 

This does not mean that we expect HMY to just turn around and start going up next week. But over the course of the next 6-12 months we believe it will be much higher than it is now. We also plan on buying more if it goes lower. 

Remember we favor buying on weakness and selling into strength during a bull market. We also accumulate positions in any given stock very incrementally as it approaches its 200 dma. When the buying is complete, such incremental accumulation should put us within 10-15% of the bottom, which is good enough for us. 

Although Friday’s market action and conventional technical analysis indicate that the gold stocks are leaning against the bottom of their support line, and appear most likely to breakdown through it – we have reservations. 

This could very well be the outcome, as it has a high probability. However, we suspect that the market may open down and then rally back up to close positive during the beginning to middle of the week. Or the market may simply break down and test its June lows. 

This doesn’t mean either will happen, as there are multiple scenarios that could play out. The above two are the most probable that we see. It matters not which way it breaks – we will take whatever the market has to offer. 

The above scenario is not predicated on wishful thinking. We believe in gold as much as anyone. We are fighting a battle to get our currency back to Honest Weights and Measures of Silver and Gold Coin – in compliance with the Constitution. 

Nevertheless, trading or investing in gold is distinct from an ideological belief and thought system. The first is employed to gain profit. 

The latter is a ideological belief system that involves the moral hazard breach of the hard money system of our Constitution, which mandates silver and gold coin, and no bills of credit: substituting in its place our current paper fiat debt-money system, which condemns most that use it to a life of servitude to the elite money changers of the world. 

Over the last year we have written many an article on gold, some of them were bullish when others were bearish; and some were bearish when others were bullish. See: The Charts Are Talking. Who's Listening? 11/16/2005; or The Charts Are Talking: Is Anyone Listening? 02/02/2006. Both were a bit contrarian in their view at the time. 

Later in April of 2006 we penned Gold & Silver: Whither They Go which ended up being fairly timely. Presently there is a 26 page market wrap of last week’s market action available at our website; plus more articles and information on gold and silver then one can possibly read. There’s even a live BB where you can post messages, ask questions, and receive answers on just about any topic. 

Come visit our new website: Honest Money Gold & Silver Report
And read the Open Letter to Congress

© 2006 Douglas V. Gnazzo
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CONTACT INFORMATION
Douglas V. Gnazzo
Honest Money Gold & Silver Report, LLC
Canton Center, CT USA
Email  |  Website

About the author: Douglas V. Gnazzo is CEO of New England Renovation LLC, a historical restoration contractor that specializes in restoring older buildings that are vintage historic landmarks. He writes for numerous websites and his work appears both here and abroad. Just recently he was honored by being chosen as a Foundation Scholar for the Foundation for the Advancement of Monetary Education (FAME).

Disclaimer: The contents of this article represent the opinions of Douglas V. Gnazzo. Nothing contained herein is intended as investment advice or recommendations for specific investment decisions, and you should not rely on it as such. Douglas V. Gnazzo is not a registered investment advisor. Information and analysis above are derived from sources and using methods believed to be reliable, but Douglas. V. Gnazzo cannot accept responsibility for any trading losses you may incur as a result of your reliance on this analysis and will not be held liable for the consequence of reliance upon any opinion or statement contained herein or any omission. Individuals should consult with their broker and personal financial advisors before engaging in any trading activities. Do your own due diligence regarding personal investment decisions. This article may contain information that is confidential and/or protected by law. The purpose of this article is intended to be used as an educational discussion of the issues involved. Douglas V. Gnazzo is not a lawyer or a legal scholar. Information and analysis derived from the quoted sources are believed to be reliable and are offered in good faith. Only a highly trained and certified and registered legal professional should be regarded as an authority on the issues involved; and all those seeking such an authoritative opinion should do their own due diligence and seek out the advice of a legal professional. Lastly Douglas V. Gnazzo believes that The United States of America is the greatest country on Earth, but that it can yet become greater. This article is written to help facilitate that greater becoming. God Bless America.