-- Posted Wednesday, 7 March 2007 | Digg This Article
The recent COT report showed a ‘net short Gold contracts’ total of 184,000. No doubt last weeks $50 drop in the POG has served to decrease that number. The commercials thrive on loading up after a sharp decline, and then sell when a rally begins to mature, and the more it matures the more they sell. If the past serves as a pattern, they are loading up right now, and if we want to ‘trade like a pro’ it behooves us to do the same.
As I’ve pointed out in previous articles, the time to buy any stock or commodity is when that item is near its 200 DMA (Daily Moving Average), while that average is rising.
For cautious traders/investors who want to see a sign that the market is turning around, as soon as the closing price closes above the high point of the day in which the low was established, then you have your first sign.
Thus once gold closes above 648.00 on the daily gold chart available at www.stockcharts.com, this first step will be established.
Featured is the daily bar chart for the POG. The channel is well defined, the 50DMA (blue line) is above the 200DMA (red line). This is called ‘positive alignment’. The green dashed lines indicate previous buying opportunities, with chart patterns very similar to today.
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Featured is the daily bar chart for the Electronic Silver Unit, SLV, trading on the AMEX. Almost every week the number of tonnes of silver, held in custody to back this trading vehicle shows an increase. A lot of money that used to go into mining stocks is now finding its way into the gold and silver ETF’s.
This makes the price movement of several large mining stocks, such as Newmont and Barrick, which were previously used as indicators, of less importance than before, and makes the ETF’s more and more important as indicators of trend reversals.
Notice on the above chart that the closing price for SLV closed above the high point of the range of the day during which the low was set, (see blue arrow). This is a positive development, and it is the first sign that the market may be turning.
Overall this is a very positive chart. The channel is well defined, the 50DMA is above the 200DMA, thus they are ‘positively aligned’. The 50D did not dip below the 200D during the last correction, this is positive. The RSI (at top of chart), is turning up in oversold territory. The green dashed lines show previous buying opportunities with similar chart patterns.
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Featured is the broadly based Gold Miners Index that trades on the AMEX. The chart pattern is that of an Advancing Right Angled Triangle, or ARAT.
The closing price today closed above the high point of the previous day, (blue arrow), this is bullish.
Although the 200DMA is currently dipping, the rising tend-line is supportive, the 50DMA is above the 200DMA, the index is back above the 200DMA again, and the RSI (top of chart), is turning up in oversold territory. The green dashed lines indicate previous buying opportunities.
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Obviously nothing is ‘written in stone’ (except the Ten Commandments). The main impetus in this ongoing precious metals market are the bullish fundamentals. These give us the confidence that as long as we ‘buy the dips’ and ‘ride the waves’ we will be successful in the end.
In order for this gold bull market to end, the following scenario has to unfold.
§ Worldwide monetary inflation must stop.
§ Barrick must have covered its hedges
§ Oil must be below $40
§ Iran and Israel must be at peace
§ China’s gold reserves must be at the desired level.
§ Russia’s gold reserves must be at the desired level.
§ The U.S. C.P.I. must be level.
§ The US twin deficits must be in balance.
§ The world’s industrial nations must adopt a measure of value, such as gold, or a basket of commodities including gold, to back their currencies.
§ The ratio between gold and the Dow index must be near par.
§ Gold must be all over the various media
§ Your brother-in-law finally has bought some gold.
Until the majority of the above takes place, give me gold!
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Disclaimer:
Please do your own diligence. I am not responsible for your trading decisions.
Peter Degraaf is an online stock trader, who issues a weekly Email alert for his many subscribers. For a free 60 day trial, contact him at:
ITISWELL@COGECO.CA
-- Posted Wednesday, 7 March 2007 | Digg This Article
