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Gold Bandits

Fri, May 30, 2008 - 12:27pm

Gold and Silver

Bandito Pointing Pistols in the Air with a Smile On His FaceA powerful force is at work to transfer your wealth to others. Something far more pernicious and dangerous to your financial health than the "cartel" or other boogie men. It is called "the market" and simply put, its job is to get you wrong! If that doesn't quite hang in a literary sense, think of all the ways you can be wrong. You can be short in a rally, long in a sell off, sitting on the sidelines in a blowoff move, underweight or overweight, early or late. All of these positions are just plain wrong.

If you are in the buy-and-hold camp have a look at this long term Gold chart. If you bought Gold anytime after December 1979, it took you until the March 2006 quarter, 27 years to get back to break even.

gold comex quarterly

The closing low for this market came at the end of the March quarter in 2001. It was the beginning of 2006 before it overcame its 1987 highs. The parabolic blowoff since late 2005 is what has caused all the excitement. Even more interest is focused on junior Gold miners. A Perth, Western Australia, broker told me this week that some of the ASX listed junior miners are having two and three times their issued capital turned over, on market, in a single day. Gold fever is alive and well!

In my weekly perusal of comments in Financial Sense articles this week I learned that Gold was a good buy now because of its relationship with HUI; that now was not the time to buy as a further low was expected and from a well read and amusing blogger "All the articles at Financial Sense have Gold going to $2000"! He obviously didn't read the Danielcode Report.

How does this well meaning and undoubtedly thoughtful advice help the individual trader? It doesn't. Just like the comments circulated on financial news and TV, it is more entertainment than analysis. Even fundamentals don't matter on a timely basis. This from Reuters today:

The market ignored reports that power problems in South Africa, the world's largest platinum producer, would continue for years. Eskom, which produces about 95 per cent of South Africa's electricity, has rationed power through a process called load-shedding since January, when large gold and platinum mines in South Africa shut down for five days due to the power crisis.

If output from major mines is being restricted, supply should be constrained and given constant demand, prices should rise. And so they did until 17 March when the US Dollar bottomed and it became apparent to all that much of the froth on bullion was from the carry trade, not from consumer or investment demand.

How could a savvy investor have known this? Commitment of Traders reports have for years been used by conspiracy buffs to "prove" that the market is rigged because there are more short positions than there is available physical gold/silver to deliver. The fact that this is a common facet of derivative trading seems to have escaped them. Nothing in the COT reports signaled the March top in Gold and Silver. Nothing in your favourite newsletter warned of the March top. The only way you could have known about it was from the Danielcode.

Newsletters, opinions and other well meaning advice can be just as dangerous as the periodic takedown strikes by the cartel. They are all part of the market's mechanism of prising wealth from the hands of the unwary.

The only truth of markets is in the tape. Price action always wins the argument. Nobody knows the future, that is axiomatic, so why base your trading decisions on the opinions of others. At the Danielcode we place infinite faith in the DC numbers and never have an opinion about markets other than what the tape is telling us at the time. And that can and does change. Your first decision as a Gold trader or investor is to determine your time frame and stick to it. If you are a long term investor you will be interested in monthly and quarterly charts. Traders are interested in weekly and daily charts. Some think a day trade is a long term commitment! Often these charts will be in conflict. Gann said that there are always two trends in any market. Determining your time frame will keep you from being swept by the tides of opinion and wishful thinking.

Last week's DC members chart for Gold showed 936.6 as the first of the high probability Daniel numbers in the operating sequence. On Wednesday 05/21, the daily bar in the red rectangle, members had a T.03 time turn signal signifying that "time" for the rally had expired. The turn, just 1.2 points from the closest DC number came the very next day! At the time of writing the market has elected the black DC number also on members charts as the last Danielcode support for the current swing. Danielcode members knew that 936 was a high probability turn point, just as they knew 879 and 868 were high probability support. The oversold stoch defined the logical target. If you are a Gold trader you have to know these numbers.

For shorter term traders, this is the actual 4-hour chart published for DC members with a fast stochastic added. There are only two places where the DC numbers and an oversold stoch coincided. Both were great places for short term traders to take profits.

comex gold 240 minute

The Danielcode defines the Gold market in all time frames.

For the Silver buffs, the Daniel numbers for Tuesday's turn are shown on the following chart. Time turn signals were issued on Tuesday before the open which marked the rally high and the start of the nearly $2.00 sell off. In fairness I have to say that a time turn was also called the following day which wasn't triggered. Strangely, Silver is the least accurate of all the markets I cover but it was right on song this week.

comex silver july 2008

OIL

From last week's FSO article "Trades of the Money Men":

For Oil, there is evidence to believe that at least an intermediate turn in Oil is to hand and Thursday's turn is more than just one day down.

And so it has been although not with any real downside momentum yet.

crude oil ny comb

Oil appears to have elected a Daniel number retracement at 124.45 in conjunction with an oversold reading on the fast stoch. $11 from the high which I told you was a high probability DC turning point last week, here on Financial Sense and almost straight to the conjunction of oversold stoch and DC target for swing traders. Hmm, at $10 per cent on the futures contract, some part of $11,000 per contract is a nice trade.

And you didn't need anyone's opinion to get it! Just the Daniel numbers and a standard stochastic straight out of the Genesis Trade Navigator software. Nothing fancy just common sense trading...and the Daniel numbers!

I invite you to visit the Danielcode Online to learn more about the Daniel number sequence which is being adopted by private traders, fund managers and proprietary traders all over the world after being revealed on Financial Sense exclusively just 5 months ago. If you don't have the Daniel numbers you are just guessing. And guessing is bandit bait!

Copyright © 2008 John Needham

About the Author

Lawyer and Financial Consultant
jneedham [at] thedanielcode [dot] com ()
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