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GOLDEN
SUNRISE OR SUNSET?
Check out the below 2 Gold charts which are LOGarithmic. In the last months, the price has advanced to a key level where the 2 blue trendlines intersect themselves: $730. Both those trendlines can be seen on the 2 charts below. This key level of $730 is a substantial resistance. Once gold has crossed $730 and has transformed this resistance into a support, gold will advance – explosively. The good thing about logarithmic charts is that they show you DISTANCE. If one takes the distance from the beginning of the bull market at $250 up to $730 and adds it on top of $730, one reaches approx. $2100. How come, you ask? Well, don’t do $730 minus $250 = $470 plus $730 = 1200 – because this is a NUMERICAL distance! We want to compare and everything is relative and therefore all that counts in stock markets is: % = logarithmic. Therefore one has to divide $730 by $250 = 2.92 = the gold price almost tippled = 192%. That’s distance in stock markets! Now take that distance and add on top of $730 and you reach $2,131. Now this is solely to show what price will be reached if the gold price rises with the same STRENGTH again as it did between 2001 and today.
No one seems to know when the correction is over. The above chart shows that there is some strong support zone below $650 and a horizontal support at $600. At $500 there is a massive support zone which goes down all the way to $450 and $423. So its only a GUESS how far the current correction goes ? Well, check this out: The key to understand here are 2 trends: 1) The Golden 79 Trend The golden coloured curve is the 79-day exponential moving average of the gold price. Many analysts use standard-wise a 100 and/or 200 day moving average. Why it is 100 and 200 days nobody knows. Probably because it’s a round number. Each commodity and each share has its own individual moves and dependencies to micro and macro factors surrounding them. Therefore one shall check various moving averages, not only 100 and 200 day averages. See for example the above 79 day moving average which has been weighted exponentially. Follow the golden curve from the beginning of the bull market until now. You will see how precisely the gold price was fluctuating around this curve – once it was the precise support and once it was the precise resistance. Now in 2005 something changed. The gold price started to rise after the violet resistance line had been broken successfully once again – but it didn’t stop anymore. For the first time since the beginning of the bull market the corrections (after the breakouts above the dominant, violet trendlines) were holding on the golden 79-day EMA curve – and started to rise again from this support. The first strong correction (from $550 to $500) occurred in the beginning of 2006 after the break above the first blue resistance trendline was successful (therefore the correction was solely a classical Pullback to the former strong resistance line to transform it into a sustainable support trendline before continuing to rise). Now the same might be happening at the very moment again. We have witnessed a second strong correction recently (from $730 to $625). Now the gold price has once more corrected to the intersection of the blue trendline with the golden 79-EMA-curve. This represents strong support now. What we might experience now is a rise above the $730 level and and a short sideways consolidation up to $750 or even as high as $800. After that consolidation, the gold price may start to make another strong move to the upside. By the way: The atomic number for Gold is 79. 2.) The Red 79 Trend The above chart shows the Relative Strength Index (RSI) with as well 79 periods calculated into the red curve. Since 2003 the RSI has been moving within the boundaries of a triangle. With the beginning of the strong upward trend in the middle of 2005 at $425 the RSI has broken the upper resistance leg and broke out. Up to now there were as well 4 corrections and each one successfully held above the upper leg which thathow has been transformed into a new support (classical “Pullback” after the “Breakout”). Once the Pullbacks have tested and confirmed the former strong resistance line as a new support, a triangle generally dissolves with a “Thrust” – a powerful explosion to the up, or a crash -ike decline. With the most recent price correction from $730 to $625 the RSI correct once more – however this time having pulled back to the very end of the triangle: The Apex – the decision if Boom or Crash is NOW. How explosive triangles can be, the silver price recently has shown: (see pink triangles):
On the top of the chart is the Silver-Gold-Ratio which has been moving within a triangle since quite some time. With the explosive thrust out of the second pink triangle, the Silver-Gold-Ratio succeeded in breaking the upper violet resistance leg. The Pullback occurred already and is finding support at the new violet support. Therefore, the Thrust is yet to come! This means that the silver price will now/soon outperform the gold price explosively – even more than what we have witnessed in the past few months. Therefore, even if we are quite bullish for gold at the moment, we favour Silver at the moment, because of the Silver-Gold-Ratio which we anticipate to explode very soon. Secondly, the silver price has just now reached a price level with its recent correction that we anticipate to hold: $11,70 – the intersection point of the red horizontal trendline and the red resistance trendline since the early 1990s has just been touched a few hours ago. If this level doesn’t hold now, the silver price will correct to $10,50 (blue support) or even further to the green support at about $10. On a shorter term picture of the silver price, we see that silver had broken the upper green trend channel in April 2006 – with the help of the red triangle:
As one can see, the silver price had a good breakout and the final pullback just reached the apex of the red triangle. The decision is NOW to be made if Boom or Crash. The silver price shall not breach the lower green support line at $11.50. We are expecting the Thrust to explode to the upside, however one shall pay especially now attention as a thrust to the downside could occur as well. There are no bullish triangles and there are no bearish triangles. The decision is being made near the apex and not before.
"The path to the height is the same
that leads into the depth." As we are quite bullish at the moment for the gold and silver price, one might counter check with the mining stocks as some times they are a good trend indicator. We are taking into consideration the XAU and HUI mining indexes. The XAU has reached a key level at about 130 points: The intersection of the apex of 2 triangles: the grey and green one. Some breakouts have already been made and showed the aim: To hold above the red-dotted resistance line to transform it into a support so the index can strongly move upwards. The XAU currently holds at 143 points - slightly above the intersection point. The key level of 130 points shall not be breached to the downside as this would indicate a SELL signal as a crash might occur. A more definite buy signal occurs once the XAU has transformed the 160 pints into a support as after that we expect an explosive upward movement.
The HUI index successfully broke above the blue resistance line at the beginning of 2006 – with the help of the red/blue triangle. The aim of that triangle is to transform the blue trendline into a support. After such a transformation has been taken place, a strong and new upward trend is beginning. There have already been several pullbacks to this new support level at currently 300 points – which shall not be breached to the downside as a sell signal would occur – especially below the trendline at 275 points. However, just like the XAU, the HUI is at the apex of the green triangle at the very moment and a thrust is about to come.
As the XAU and HUI indexes have reached some significant support zones at the moment and are ready for a big move as being on apexes of triangles, lets compare the XAU against the HUI. Reason being is that the HUI is a much more dynamic index and it is known to rise stronger and correct sharper than the XAU index. Therefore, one good indication of a good bull market is: the HUI rises stronger than the HUI. A time to be prudent is when the XAU performs better than the HUI. Since the end of 2005 the HUI outperformed the XAU strongly by rising above the green trend channels indicating the end of the sideways movement since end of 2003. After the upper green trendline had been broken, the ratio corrected sharply to this new support line meaning that the XAU outperformed the HUI. As this new support line seems to have held as a new support after the recent pullback and the HUI is now outperforming the XAU again, we are in a sound bull market again since some few days.
In our article “HUI vs Gold – Good buy from weak hands”, dating back 05/02/2005, we anticipated correctly and precisely the end of the correction in May 2005 – at the first pink point. This was being made with the help of the HUI-Gold-Ratio. Further information about the significance of this ratio and especially in connection with the below chart can be read at the earlier mentioned article.
What happened since the last pink point ? The HUI-Gold-Ratio was indeed rising – however the entire movement since 2003 now became a single massive triangular formation which upper red leg had been successfully breached at the end of 2005, whereafter the breakout occurred. Just recently, the ratio corrected heavily – also known as the Pullback. No matter if the ratio now corrects another time to the direction of the apex of the triangle or not, the chart suggest an immediate BUY signal as the pullback had been accomplished and the explosive thrust is next respectively already in the making. The target aim of a to the upside thrusting triangle is to take the highest marked resistance as a new support – so that a sustainable and strong upward movement can start from this new support level (see very first chart of this article…)
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