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GOLD
AND SILVER REPORT Gold
The weekly chart below shows gold well within its symmetrical triangular formation. The triangle keeps compressing and coiling the price tighter and tighter. It will pop hard, either way - up or down, and break out of the triangle. When the break is sustained in either direction, the intermediate term direction of the next move will be given. Gold is in a bull market, and it is until such time that it isn’t, and unless and until that time comes, the odds favor a resolution or break to the upside.
Next up is the daily chart for the Gold Trust Shares (GLD). Price has rallied up over its 50 dma. Notice the gap that was just put in. Gaps tend to get filled – not always, but often enough. Volume at the bottom of the chart was down on the move up – not a good sign.
The monthly gold chart has a negative MACD Cross and a positive STO cross, thus sending mixed signals. It still is well above its 20 ema and RSI remains strong and headed towards 70.
When gold is outperforming silver, as it has been since the beginning of the year, it strongly suggests that the financial markets and eventually the economy are headed for trouble. Silver The weekly chart of silver shows its obvious weakness compared to gold. GLD is over its 50 dma, and silver is below its. A negative cross of the 13/34 ema has occurred as well, flashing short term warning signals.
Xau IndexThe Xau is bumping up against its 50 dma and its upper fib retracement level (61.8%). RSI is pointed up and a positive MACD Cross over has occurred. The upper trend line of the xau/gold ratio has been broken above as well.
MACD is flashing a short term buy signal, but the 13/34 ema is flashing a short term sell signal – once again, contrary indicators that show indecision and lack of fortitude. Hui Index The Hui gained 2.25 points to close at 327.2 (+2.41%). Gold stocks out performed physical gold and silver this week – a good positive divergence is just what the doctor ordered. Now the index needs to build upon what could become ground zero for a launch upwards. On the daily chart below, RSI is bumping up against the 50 level, the histograms have turned positive, and a positive MACD Cross over has been put in place. Directly above is the 50 dma – that is the next target to be taken out. If the Hui can close out the week above its 50 dma, the correction will most likely be over. The recent violent plunge down to 284.85 tested the low from 2006 at 274.72, which support line held. It’s still possible for the index to fall again and test the lows, however, the probability now favors that the lows have been successfully tested. A retest of the highs may be up next.
The weekly chart still shows the break below the bottom trend line and a breach of the series of higher lows that had been in place prior to the break down. The index has rallied up, however, it needs to cross above its 50 dma AND enter back within its channel AND above the channel’s bottom trend line. Only then can any sustainable rally up have any chance of occurring.
The monthly Hui chart is sending mixed signals as usual. There is a negative MACD Cross, while at the same time there is a positive STO Cross. Histograms remain negative. RSI biased to the downside. A test of the 20 ema appears to be coming soon. During the entire bull market the 20 has held firm as support all but one time; and after that one time the index went on to make new all time highs. You’ve got to love it.
There is much work to be done on the Hui/Gold Ratio. Just to repair the damage done and to bump up against its upper trend line is going to take a lot; and until the upper trend line is broken above, any rally of any intermediate term nature is out of the question. However, there is no fever like gold fever, and when gold and the gold shares decide to move – they can move like rockets. It is a thinly traded market and it does not take a great deal of money to move it, and to move it but good. Summary The stock markets have rallied back and gained a good deal of their prior losses, however, they have not as of yet regained the high ground. According to Dow Theory and several other trading systems, the market is still on a buy signal, and a sell signal has yet to be sounded. According to others one would have done better (gain more profit) by being in T-Bills since 2000. Likewise, what about valuations – what about debt levels – what about the toxic waste of subprime derivatives? Subprime and related mortgage and liquidity problems are not going away anytime soon. The tons of carry trades that will be eventually unwound are not going away anytime soon. The 450 trillion dollars of derivatives the BIS has on their books is not going away anytime soon (or if they do the gig is up). The merchants of war do not yet seem satiated, so the costs will keep mounting and we will have to foot the bill. Because of these and other reasons I do not see how it is possible for a new bull market to occur in the stock market at the present time and under current conditions. Perhaps there is a bit more to the upside, but nothing that will prove to be sustainable. The bear has come back out of hibernation, and will slowly begin to feed once again. He will have at least one large meal before winter sets in. Recall that we have already seen that the financial, banking, mortgage, and real estate sectors are in trouble and have turned down significantly. Either these sectors are going to turn around and go up, or the other sectors are going to turn and head down, with the economy following suit. Because of the existing financial problems listed above, the most probable outcome is the latter. The following news clip from The Guardian is not about some fly by night little bank, or rogue trader run amuck, this is a large major bank with repeated problems in the dark underworld of subprime derivatives. Ashley
Seager, Larry Elliott and Julia Kollewe “Barclays has been forced to borrow hundreds of millions of pounds from the Bank of England's emergency lending facility for the second time in a fortnight, it was revealed last night. In a hurried and emotive statement after London's markets had closed, Barclays attempted to calm fears that it faces a cash crisis. Rumors had circulated all day that Barclays was forced to go to the Bank of England after the central bank said it had lent £1.6bn at its penal rate of 6.75%.” Bonds will do well IF the stock market does not. If stocks rally bonds will not. If stocks fall, bonds will go up. The dollar does not yet appear about to fall off the cliff, however, it is hanging precariously, therefore the risk remains high. If the Fed wants to save the real estate and mortgage market it has to save the bond market, all of which means the Fed MUST lower interest rates. The problem with that scenario is that the U.S. dollar is already sitting on the edge of the abyss, and any misguided steps could send it over the top. If the dollar tumbles, gold will return to its just position as the sovereign of sovereigns. The gold stocks have been performing badly; even physical gold was slammed down pretty good in the middle of the subprime liquidity fiasco. Gold is the most liquid and soundest of any and all assets, as such it will be sold whenever major liquidity problems surface. Often time’s traders are forced to sell not what they want to sell, but what they can sell. Gold can always be sold – anywhere – anytime. The key to remain focused on still appears to be the Japanese Yen. It has financed a great deal of the current asset boom around the world, via the now infamous carry trade. If the yen rises – most other assets will fall. There will be exceptions at times: U.S. Treasury paper and individual currencies are most likely. But it will not remain this way for the duration. A time will come when U.S. Treasury paper, as well as the U.S. dollar is shunned – no one will want to own them, as all faith in the system will have been lost. We are not yet at that point. Presently we have experienced a minor tremor of that which is to come. So far it has been limited to a scramble for liquidity because of the problems in the subprime and other mortgage related markets. This is a mild form of deflation; however, it can get much worse and uglier. If and when it does, the Fed will react by doing the one thing it knows how to do – it will create more credit and money to throw at the problem. This will cause runaway inflation known as hyperinflation. It is a ways off yet but be forewarned, the first tremors have sounded and something wicked this way comes. Be careful out there and take the necessary precautions now, ahead of time, as once the storm hits it is too late to prepare, it is time to get out of the nasty weather and to seek shelter. Have you ever tried to put a tarp over a leaking roof during a bad thunderstorm – it doesn’t work. The time for covering the roof has already come and gone. If one takes the necessary precautions ahead of time they will weather the storm without much incidence. There are always plenty of opportunities even during a crisis; we just have to find them. See market wrap indicator table below. Good luck. Good trading. Good health. And that's a wrap.
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INFORMATION 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. The opinions of FSU contributors do not necessarily reflect those of Financial Sense. |
