-- Posted Sunday, 22 October 2006 | Digg This Article
Ever since September 14 I’m pointing out a major ‘BUY’ opportunity for gold and its shares would be upon us but still no ‘BUY ‘signal has been triggered. Some readers wonder if I had been too optimistic and are getting impatient since the gold shares are getting nowhere these days. I started notifying our members on this up-coming major ‘buy’ based on the relative gold charts since the relative gold charts nailed every single major bottom since the bull market in gold began in April 2001.
Now the power of the r-gold charts seem to have proven itself again since I projected based on previous r-gold bottoms a maximum down-turn of gold towards the $560 area while gold was still trading at $575 at that time. Now after touching this $560 level twice gold went up by $40 and is challenging the $600 level again.
Although the recent $40 up-move is a welcome one still no ‘BUY’ signal has been triggered since gold still finds itself in a down-trend which started early May this year. The good news however is that we are getting close to a major break-out soon since all it takes is a close above $602.
Now let’s recap what has been said since September 14 and why and see why we’re close to a major break-out soon.
In my piece ‘Gold – It’s a Bull market Stupid’ I explained how the relative charts were indicating an upcoming BUY opportunity but pointed out some patience was still required.
I wrote:
Excerpt Sept 12: Gold – It’s a Bull Market Stupid
Investors should be on high alert from here on since these opportunities are a gift and don’t occur that often (6 times so far in 4 years)
Ok you’ll say, so should I buy shares like crazy now?
No, it ain’t that easy since gold itself still finds itself in a downtrend which started in May this year. So a confirmation of gold breaking out of its down-trend would be a something to watch for.
END.
In my Sept 17 piece ‘Selling Juniors – You must be kidding’ I repeated that still more patience was required since gold still found itself in a down-trend and calculated a worst case scenario of $560 gold based on previous relative gold values at major bottoms.
I wrote:
Excerpt Sept 17: ‘Selling Juniors? – You must be kidding’
Now should we buy gold now?
The answer is no since gold still finds itself in a downtrend and we simply have to wait patiently till it breaks the recent downtrend to the upside..
Q: What is the maximum downside potential from here on?
A: Well, if history could be of any guide then we see that previous correction ended in the 0.95 – 1.00 rGold area. A rGold value of 0.95 translates itself into a gold price of $560 these days..Sure enough this is not a prediction that gold will drop to $560, it’s just a worst case scenario according to the rChart..
END…
Well, although the maximum downside projection was not a prediction but a worst case scenario gold did manage to plunge all the way down to the $560 level indeed..
So did we reach the bottom here at $560 and should we buy like crazy now?
Although the chances are we did have reached the bottom here indeed, I still maintain the view that a major BUY signal will be triggered upon breaching gold’s down-trend which started early May to the upside..
When that will happen?
Now let’s take a peek at the updated gold chart first:
As this chart clearly demonstrates gold is challenging its downtrend (D-line) which started early May this year. This past week the $600 level was being defended heavily and a close above the $602 level will be of extreme importance since it will not only take out its down-trend (D-line) which started early May but also its 50 and 200 dma. Besides that the $600 mark is one of an important psychological level as well since once gold could manage to stay above that level for some time, the end users realize that we have reached a new plateau and adjust their buying points accordingly.
As stated above the max downside projection according the relative gold chart was $560 and this level has been tested twice indeed. Now let’s take a peek at the r-gold chart and see what it says right now:
The r-gold chart is gold divided by its own 200 dma.It has proven to be a reliable indicator in spotting major bottoms in gold for the past 5 years.
The r-gold value has bottomed at 0.95 (it’s lowest value during the entire gold bull since 2001) and clocks right now a value of 1.00 thereby suggesting the bottom is in.
I’m quite excited about the upcoming ‘BUY’ opportunity since it really marks a ‘MAJOR’ buy like we had in April 2003, May 2004 and May 2005. All ingredients are there for a major up-leg in gold and its shares going into 2007.
All critical drivers for gold are still pointing towards much higher gold prices the years ahead and once gold manages to break its current down-trend an objective of $800+ before end of next year is in the cards. Please note that this isn’t just a technical objective, even Citigroup (normally to be found in the bearish gold camp) is targeting new all time highs for gold within the next two years and $700 by year end.
Mineweb reported earlier this month:
Citigroup looks to historic gold price highs
Citigroup Metals Analyst John Hill has predicted gold to test the $700 per ounce mark by year end and achieve historic highs of $850/z in 2007-2008.
END.
Although it goes far beyond the scope of this update to discuss all critical drivers for gold, one important one remains the US$. The good old dollar is loosing credibility fast when statements like these are hitting the news wires more frequently then ever before;
Costello seeks orderly $US withdrawal
John Garnaut Economics Correspondent
October 18, 2006
TREASURER Peter Costello has called on East Asia's central bankers to "telegraph" their intentions to diversify out of American investments and ensure an orderly adjustment.
Central banks in China, Japan, Taiwan, South Korea and Hong Kong have channelled immense foreign reserves into American government bonds, helping to prop up the US dollar and hold down American interest rates.
Mr Costello said "the strategy had changed" and Chinese central bankers were now looking for alternative investments.
-END-
Statements like these are certainly not dollar bullish, so when the dollar goes so does gold but in opposite direction.
On top of that the physical demand for gold is sky-rocketing these days.
This year, gold becomes as good as gold again
Gouri Shah
Thursday, October 19, 2006 01:06 IST
MUMBAI: Gold seems to be back in favour this Dhanteras. Dealers across the city have registered up to a 50 per cent increase in demand for the metal, as compared to the same period last year. A large segment of buyers is choosing gold coins over jewellery, thanks to the ‘buy-back’ guarantee.
“The buying trend is very healthy this year,” said Ashok Jain of the Gold Dealers Association. “There is very good demand for coins and gold bars as investment purchases.”
Some dealers attribute the trend to a rising awareness about the metal as a desirable investment option. Banks such as HDFC and ICICI are offering their customers coins or bars of gold with 99.9 per cent purity in small denominations such as 5gm, 10gm and 50gm. These inducements are complemented by special discounts and schemes to encourage purchases.
Corporations, which had abandoned gold for electronic items when prices touched a 17-year-high last year, are going back to basics. Dealers have registered huge corporate orders for gold coins ranging from 1gm to 10gm.
“They make a good corporate gift,” said Mukesh Shah, a gold dealer. “We are having a serious problem keeping up with the demand.”
END.
We are having a serious problem keeping up with the demand.
Well, don’t think the demand for physical gold will disappear anytime soon since according to the Associated Chambers of Commerce and Industry of India Indian gold demand may rise to 981 tons by 2010 and 1,153 tons by 2015 from about 800 now.
Increase in world wide gold demand being offset by a higher gold production?
Forget it! Gold supply is on the wane and flat at best for the next coming years.
Estimated gold reserves have been on a downtrend since 2001 (according to USGS data) and it seems that the days of ever increasing gold reserves may well be over.
Headlines like these do support that view:
Output of gold at 10-year low
STRONG gold prices have not been enough to stop Australia's annual gold production from sliding to a 10-year low.
Output of the precious yellow metal fell by 15 tonnes to 251 tonnes in the year to June 30, according to a production survey published yesterday by Melbourne-based consultancy Surbiton Associates.
END.
SA gold production declining 5% annually
Mineweb Oct 09, 2006
JOHANNESBURG (Mineweb.com) --South African gold production fell from 430 tonnes in 2000 to 295 tonnes in 2005 as lower grades of ore are mined and reserves are seen to be being depleted, and the country is soon likely to be overtaken as the world’s largest producer of the yellow metal.
Production will see an annual decrease of 5% over the next few years as new projects will not succeed in replacing continued falling production at existing mines, says Alex Conradie, chief economist of gold and platinum group metals at the Department of Minerals and Energy…
END.
Furthermore what people tend to forget is that rising gold prices automatically leads to a lower gold production in the short term since mining companies will be switching from mining high grade ore to low grade ore. This phenomena is described in detail in chapter IV ‘Gold & Supply’ of the Gold Drivers Report.
So what do we have here?
A world reserve currency (dollar) which is backed by a technically bankrupt nation forcing foreign countries to look for ‘alternatives’… as stated by Australian treasurer Costello (see above).. But what are the alternatives?
Well, what about gold?
George Kapasakis, a senior foreign exchange trader at Mizuho Corporate Bank in Sydney recently said:
“Central banks will use gold as a fourth currency instead of the dollar, euro and yen” to hedge exchange-rate risk, Gold will be underpinned.”
END.
Well, hard to argue with that statement when you see headlines like these over and over again lately:
China Should Buy Gold, Central Bank Adviser Says
China should use its foreign-currency reserves, the world’s largest, to buy gold and oil as a hedge to guard against the risk of a sudden drop in the U.S. dollar, said an adviser on the central bank’s 13-member policy board.
END
So gold will shine as an alternative for the dollar, gold demand is picking up while gold supply is on the wane.. you really think this is gold bearish? No, of course not, the long-term prospects are excellent, the down-side risk is almost none.
The setup for a powerful run-up is phenomenal, as stated above once gold breaks its downtrend to the upside a run-up towards the $800 mark is in the cards before end of next year. What do you think your gold shares will be worth by then?
Its my strong believe that within a year from now many people will scratch their head how they could have been so stupid to have missed the major ‘BUY’ in Q4 of 2006.
We will alert our members once the upcoming ‘BUY’ opportunity presents itself and inform them upon good entry points for our Discovery TOP 10 stocks.
Stay tuned,
Eric Hommelberg
The Gold Discovery Letter/
The Gold Drivers Report
www.golddrivers.com
Readers interested in receiving our break-out alerts can join us today as of little as $30 a month. Technical break-out alerts are one of the main features of the Gold Discovery Letter which has furthermore a strong focus on tracking down major discovery cases. The TGDL Discovery portfolio has gained already +400% this year. Subscription info can be found HERE
-- Posted Sunday, 22 October 2006 | Digg This Article
