-- Posted Friday, 5 October 2007 | Digg This Article
Gold issued a buy signal today, with a number of different signs. We are faced with a choice now. By buying in at this point, we could possibly lose 5%, (in the event that gold drops back to the $700 support level), or we can double our money and more, (with gold going to $2,144.00).
This $2,144.00 is the number that gold must reach, just to be even with gold at $850.00, the previous high set in 1980, when allowing for inflation (as reported by the government – notorious for ‘underreporting the CPI’). To calculate this yourself, simply visit www.bls.gov and click on ‘inflation calculator’ at top left.
Charts courtesy of www.stockcharts.com
Featured is the GLD, gold ETF. Price dropped early in the day, below the low of the previous day (red arrow), then closed above the high of the previous day (blue arrow). This is called an ‘outside reversal’. A very bullish signal.
Featured is the HUI index of unhedged precious metals stocks. The HUI is in the process of carving out a bullish pennant formation (blue lines). We are faced with two possibilities here. A breakout on the downside, will very likely find support at the previous resistance level (green line). A breakout at the upside (a very real possibility after today’s positive action in the HUI), sets up a target at 480! The RSI (top of chart), has worked off the excessive bullishness that caused it to rise above 70, and the two moving averages (50DMA and 200 DMA) are in positive alignment to each other, and both are rising!
All aboard?
Featured is the XAU, gold and silver stocks index. The same bullish flag formation that is evident in the HUI index, is showing up in this XAU chart as well. The RSI has come down from being overbought at 80 to a reasonable 60 (top of chart), the 50DMA and 200DMA are in positive alignment, and both are rising.
Featured is the chart that compares the gold price to the price of crude oil. For the first seven months of this year, oil outperformed gold. Then, at the end of August we see in this chart the forming of an ABC bottom, which turns the trend back in favor of gold. The 50DMA is bottoming (solid blue line), and will soon be heading towards the 200DMA again. The RSI and MACD at top and bottom of the chart are in positive alignment to this trend reversal (blue dashed lines). The most likely outcome will be for gold and oil to rise in tandem, with gold outperforming oil.
Summary:
While nothing is cast in stone, the best way to anticipate the future is by examining the past. The chart patterns highlighted above have proved to be very reliable indicators in the past. To ignore them could well mean missing out on a good part of the next ‘leg up’. To paraphrase the heading of this article: The most we are likely to lose by getting in now is -5%, what we stand to gain cannot yet be measured!
Some of you may be concerned that the US dollar could rise, in view of the fact that it is currently ‘oversold’. My analysis indicates that a rise to 80.00 is quite likely, although it will have some tough hills to climb. Qatar and Vietnam announced today that they are reducing their holdings of US dollars. The possibility of a ‘domino effect’ is very real.
In any event, I expect gold and silver to soon start ignoring the ups and downs in the US dollar, and move up on their own fundamentals. The sub-prime credit mess has not been solved, merely delayed. The Wall Street crowd is still under hypnosis. Citigroup lost 6 billion dollars during the last quarter, yet its shares rose 1.00 (Oct 1st), upon this news. What are these people smoking?
Fellow chartist DANI (www.dani2989.com) has just issued his first buy recommendation on silver stocks since July 2006. Silver then was 10.50, and subsequently moved up to 14.50
DISCLAIMER:
Please do your own due diligence. I am NOT responsible for your investment decisions.
Happy trading!
Peter Degraaf is an on-line stock trader. He has over 50 years of investing experience. He issues a weekly Email alert for his subscribers. For a 60 day free trial, please Email him: ITISWELL@COGECO.CA, or visit his website www.pdegraaf.com
-- Posted Friday, 5 October 2007 | Digg This Article
