Introduction
Due
to the recent fall of gold and silver, and the precious metal stocks, we
thought we would attempt to offer whatever assurances we can, knowing
there are many an investor shaken by the recent downside action.
Coupled
with the news media, always ready and willing to sensationalize any news
story to garnish quick profits, and a volatile mix has been concocted.
The elite collectivists who can sway the ebb and flow of the tides, can
be seen readying their trolling nets, in search of bounty – other’s
bounty, which soon becomes the spoils of conquest.
There
appear to be but a few choices to describe the recent market action in
the precious metals sector, which has also spread like a contagion
across the broader spectrum of the commodity markets in general.
- The
golden bull market is turning into a bear market (not likely)
- The
retest of the June lows we have been waiting for is here (most
likely)
We
cannot think of any other choices aside from the above two to explain
was is transpiring, although there are various sub-scenarios of the
above two, regarding the exact unfolding of the events via not only
price action, but the time or length of the move as well.
Back
on October 26, 2005 we penned the article: Gold:
Stage One or Two?
which at the time was
the topic de jour. Here is what we had to say, including a couple of
charts that were provided at the time.
Price
Action
“What
other markers or indicators might there be that gold is entering stage
two of its bull market? Well, when all is said and done, what matters
the most is price action. So, let’s look at a chart of the
price action of gold to see what it is saying.
The
chart below is the price of gold from 1985 to 2005. Notice to the far
left of the chart the highest price, which was back in January of 1988,
at approximately $500 per ounce.
Now
look to the far right of the chart. You can see the price is approaching
the $500 level again for the first time in twenty years.”
London
Gold Fix 1985 - Present
“Stand
back if you will, and take the entire chart/picture in at one time. What
does the formation of the entire chart look similar to?
It
starts out high on the left, travels down, bottoms out, and then moves
sideways, and finally up – approaching nearly the same height as on
the left.
This
is called a cup formation. One of the most powerful chart formations is
known as a cup with a handle. The handle is usually sideways action to
the right of the chart (present price action) just before the price
breaks out above the rim of the cup – the highest level reached on the
chart, i.e. $500 per ounce.
From
this long-term chart, it is obvious that the price level of $500 is
important if the gold bull is to stay intact. When the price breaks
through this level, stage two will most likely be starting.
When
$500 becomes support rather than resistance – stage two will be here.
The Price
Level
Below
is a chart of gold from 1975 to 2005. Notice the spike high up to $800
per ounce on the left hand side of the chart. Follow the price action
down to the first bottom near $300 per ounce. Note where gold then
rallied to - $500 per ounce.
From
here, it then fell back to the $300 level. It then rallied back up to
the same $500 price level. For the next 18 years, the price has never
risen back to the $500 level – until now, as we are getting closer by
the day.”
London
Gold Fix 1975 - Present
“This
is why the $500 level is of significance. Once this level is breached
and becomes support – stage two is here. Make no doubt about
it.
We
may very well be on the verge of breaking into stage two – a
transition appears most likely from stage one to stage two. However,
that doesn’t mean that the coast is all clear, and that an
intermediate term correction cannot still take hold of the ship.
Markets
do not just move in one direction – even powerful bull markets. There
is an ebb and a flow to the markets, between buyers and sellers, as
that’s what makes a market – differences of opinion. All
moves get corrected, in either direction, sooner or later.
Perhaps
we are in stage two – perhaps not. Time will tell as it always does.
If you want to know for sure that stage two is occurring, the crossing
of the $500 level and
the change from that level being resistance to support –
will undoubtedly indicate stage two.”
Against
the Crowd
At
the time that was a fairly controversial opinion, as everyone was
focused on the upside – not on the downside. We penned another article
on April 4, 2006: Gold
& Silver: Whither They Go that contained the following
chart:
XAU
Gold & Silver Index
Events
Well,
since then we had a new high put in place by both gold and silver, and
the HUI Gold Stocks Index, a subsequent short term correction, followed
by a breakout by the HUI out of a symmetrical triangle formation that
then reversed down, and has been heading down ever since.
Boring
action it has not been. More like taking a high speed elevator ride
while somebody fools with the up and down button, leaving your stomach
behind at the scene of the crime.
So
what’s it all mean? Well, as we said earlier – either the bull
market continues on ahead, or changes from bull to bear. Our vote is
the bull continues on.
Next
issue: then what is unfolding with the recent violent downside action? Our
bet is the test of the June lows, with a little set-up and help by
the elite market collectivists, who have been known to moonlight as
market interventionalists. Poor souls - they just can’t seem to get
enough, as if there’s a hole in the bucket – like grains of sand
through the hour glass.
It
Is What It Is
Another
idea we would like to offer is that the bull market is in effect until
it isn’t, and as of now it is. Furthermore, the recent price action is
not without precedent, as the above charts showed and the following
illustrates.
HUI
Gold Bugs Index
From
our website we posted the following chart early this morning trying to
offer some encouragement to fellow investors.
HUI
Gold Bugs Index
The
vertical blue lines indicate times when the 200 dma of the HUI Index was
breached to the downside going back to 2002. As can be seen, such was
not a rare occurrence, nor should it be expected to be. For a bull
market to remain sustainable it must undergo intermediate term
corrections.
The
Move
The
next chart is an updated version of one we posted in our market wrap
this weekend.
It’s
a weekly chart of the HUI Index with the fib retracement levels from the
May 2005 intermediate term low of 165.61 up to the recent May 2006 high
of 401.69.
The
rise from 165.71 up to the high of 401.69 is a gain of 235.98 points
(401.69 -165.71 = 235.98) which is a 142% increase (235.98 divided by
165.71 = 142%).
The
most critical point in ALL of this is that we have not had an
intermediate term correction of the precious metal stocks since May of
2005.
As
shown above, the rise off the low to the top of 401.69 was a total of
235.98 points. A 50% retracement of that gain is equal to the 283.70
price level (50% of 235.98 = 117.99 and 401.69 minus 117.99 = 283.70).
The
other fib levels are shown on the chart:
A
bull market is in effect until the series of higher highs AND HIGHER
LOWS is broken. The last intermediate term low was 165.71 made in May of
2005. Until that low is broken and a lower low occurs – the bull
market is.
HUI
Index Weekly Chart
Does
that mean we should all hold our positions unless or until 165.71 is
breached? No it doesn’t mean that. Each individual investor must
decide for themselves what their comfort level is with their holdings,
what their risk tolerance is, and what their overall financial situation
is. Only you can decide what is best for you. What good is it to make
money or profit if you can’t sleep at night?
The
fundamentals for gold and silver are obvious:
- US
Savings rate almost non-existent
- Over
issuance of paper fiat debt-money
- US
deficits expanding at alarming rates
- World
debt levels increasing at alarming rates
- Over
issuance of credit via structured finance and derivatives
- The
purchasing power of all fiat paper money constantly eroding
- The
purchasing power of the US Dollar constantly eroding towards
worthlessness
The
technical indicators for gold and silver are still intermediate and long
term positive.
Intervention
Lastly,
interventional analysis undoubtedly shows that large players have and
are intervening in the precious metals markets, as well as oil and other
commodities.
This
is self-evident from the derivative positions in these markets held by
various financial entities, on both the governmental and private level.
In our weekly market wrap we presented a table of all these derivative
positions: totaling approximately 3
TRILLION DOLLARS.
However,
no one entity or group of entities can control the markets as if they
were omnipotent. They can sway the markets and direct them here and
there to a degree, which at times can be quite significant, as we have
just seen, and may see more of.
But
the market is much LARGER AND MORE POWERFUL then any one investor or
group of investors, as the market is the sum total of ALL investors.
From
the day that markets first existed, there have always been the elite
moneychangers who try to gain more then their fair share, which for a
time they often do – but in the end the price they pay is far greater
then they had planned.
Primary
Trend
The
primary trend of the market is a law unto itself and cannot be denied:
just as the fates cannot be denied – even by the gods and those who
desire to be gods. Zeus himself must obey the three sisters of fate.
Intermediate
and long term we remain bullish on gold and silver. When such changes we
will so state. It is what it is – until it isn’t – and as of now:
it is.
Special
Treat
Below
we attach some charts from our dear friend Alexandra Siena. As you can
see, Alex is a chartist extraordinaire. We are fortunate that she shares
her work so freely. Thank you Alex. We will not comment on her charts,
as they are self-explanatory.
Conclusion
The
gold and silver bull market is intact. Presently an intermediate term
correction is testing the June lows. Prices may be volatile both to the
upside and downside short term.
Prior
to any meaningful intermediate term advance, further downside (an
upside) action will occur. Enough technical and emotional damage has
been done that TIME is required to work off the overhead supply and
resistance that has resulted therefrom.
We
suspect an intermediate term move up to begin by the New Year.
The
gold bull IS, until it isn’t – and as of now: IT IS.
Come
visit our new website: Honest
Money Gold & Silver Report
And read the Open
Letter to Congress
© 2006 Douglas V. Gnazzo
Editorial Archive
All
rights reserved. Any republication without written permission
of author
and Financial Sense prohibited.
CONTACT
INFORMATION
Douglas V. Gnazzo
Honest Money Gold & Silver Report, LLC
Canton Center, CT USA
Email
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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.
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