-- Posted Monday, 28 July 2008 | Digg This Article
| Source: GoldSeek.com
by Howard S. Katz
Yea verily, we have had some bad weeks in the gold market since the middle of July. The question which faces all good gold bugs is, was this the kind of decline which completes a move and sets up the stage for a sharp reversal (like the sub-prime crisis of August 2007 vis a vis commodities), or was it the kind of decline which breaks support and sets the stage for a total collapse (like the first part of October 1987 vis a vis stocks)?
And who knows what evil lurks in the mind of Ben Bernanke?
The One-handed Economist knows. Ha, ha, ha, ha, ha.
Let us begin by restating the obvious. Gold is a proxy for commodities. Gold is a CRB index suitable for widows and orphans. It can be bought safely. It can be kept under your tight control. It is liquid, and while the government can mess with any form of wealth, a great many people will get mad if they mess with gold.
So let us take a quick look at what commodities have done in the recent past:
Above is the chart pattern which the technician calls a symmetrical triangle. A symmetrical triangle occurs when the short term swings become smaller and smaller allowing us to draw an uptrend and a downtrend line which cross. Although the price is more likely to break out of the triangle in the same direction it came in from (in this case up), as a matter of caution, we wait for one of the lines to be broken and take this as a forecast of a similar move in the same direction.
In more common sense terms, a triangle indicates a pause, or a resting, in a powerful (longer term) move. And the present situation fits this once again. Commodities had a powerful up move from last August to this March. Commodity traders built up a lot of profits, and it is not to be wondered that there was a bit of profit taking.
Now what of the past 3 weeks? Well, these represent a decline to the point (the apex) where the two lines (uptrend and downtrend) cross. This is called the pull back to the apex of the triangle, and is a normal part of the technical action. We don’t always get a pull back. But they are the expected course of events.
Of course, we never rely on just one technical pattern, no matter how picture perfect, because, while giving us a probability of success, on any given occasion such a pattern can be wrong. So let us look at the story being told by gold itself:
Here we have a different chart pattern but one just as pretty. Gold has formed a head and shoulders bottom. It broke out right around the 4th of July, and it has made first one pullback to the neckline and this week a second. Once again we find a powerful pattern on our side with a pullback to a key technical level.
This is a tease. For more I say.
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It’s lots of fun; I’ll tell you that’s
The honest truth,
from Howie Katz.
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-- Posted Monday, 28 July 2008 | Digg This Article | Source: GoldSeek.com
