Do Gold Prices "Need" To Fall

Todd Horwitz, Chief Strategist at Adam Mesh Trading Group will be waiting for gold prices to drop before buying in.



Gold, Oil & Index ETF Trading Analysis

Will Rhind: Gold Is the Safest Currency

Will Rhind, head of U.S. operations for ETF Securities, says that despite gold's recent volatility, it is the safest currency around.

Oil N Gold: Gold Price is Expected to Gain Supports from Festive Buying in India

WTI crude oil price fell from a 2-week high in European session as Hurricane Irene has done less damage on oil infrastructure than previously expected. As pipelines, terminals and refineries did not seem to get hurt by the storm, oil production should remain intact. Gold price changed little at 1785/1800 level. Price may gain supports and rise as Indians extend purchases during the festive season.

Indian festivals are clustered in the second half of the year: Eid this month, Diwali in October and the wedding season later in the year. The chart below shows that gold performed better in the second half of a year over the past 30 years. This might be helped by the festive season in India. Rajesh Exports, India's biggest jewelry maker, expected that gold buying (jewelry, coins, bars and medallions) may rise to 250 metric tons in the 3 months ending November 30, up +25% from the same period last year. Elevated gold prices have not dented investors' interest in the yellow metal.

The global economic outlook does not go as strong as what recent price movements have suggested. Christine Lagarde, the new managing director of the IMF, warned that the world economy is in a 'dangerous new phase' and we are at risk of 'seeing the fragile recovery derailed'. The IMF revised lowered its economic forecasts. The world GDP will probably grow +4.2% in 2011, down from June's estimate of +4.3%, and +4.3% in 2012, down from 4.5% projected previously. Most of the expansion will be driven by emerging markets as downside risks growth in advanced economies are increasing. In the US, GDP growth is trimmed to +1.6% for 2011 and +2% for 2012 from ++2.5% and +2.7% respectively. The fund also revised down Eurozone's growth rates to +1.9% for 2011 and +0.4% for 2012 from +2% and +1.7% respectively.

Eurozone's confidence deteriorated sharply in August. With exception of consumer confidence, all other indices fell much more than the market had anticipated. Consumer confidence dropped to -16.5 (consensus: -16.6) in August from a revised -11 in July. Economic confidence slipped to 98.3 while July's reading was revised lower to 103. Industrial confidence fell into the negative territory (-2.9) in August while the reading in July was revised down to 1. Services confidence dropped to 3.7, more than halving July's 7.9. In the US, the S&P/Case-Shiller Composite-20 Index probably contracted -4.9% y/y in June after declining -4.5% a month ago. Consumer confidence in the country might have dipped -7 points to 52.5 in August. The Fed will also released minutes for the August FOMC meeting today.

Posted courtesy of Oil N Gold.Com

Federal Reserve Governors Statement Puts Gold Back in the Safe Haven Trade

Gold futures closed up $37.40 an ounce at $1,829.00 today. Prices closed nearer the session high today and saw bargain hunting and some fresh safe haven buying interest after a U.S. Federal Reserve Board governor said he wanted aggressive easing of monetary policy by the Fed and was worried about the U.S. economic recovery.

The gold bulls have made a strong recovery from last week's spike low on the daily chart, to suggest last week's low will become a "reaction low" on the daily bar chart. If prices can continue to work sideways to higher in the near term, then bulls would gain confidence the uptrend on the daily chart has been restarted.

Silver futures closed up $0.774 an ounce at $41.375 today. Prices closed nearer the session high today. The silver bulls have the solid overall near term technical advantage. Prices are in a choppy, two month old uptrend on the daily bar chart. Bulls' next upside price objective is producing a close above strong technical resistance at the August high of $44.295 an ounce.

The U.S. stock indexes closed higher again today, as investor risk appetite has upticked this week following last Friday's speech by Fed Chairman Bernanke, who was a bit more upbeat on the U.S. economy. Some bullish comments from a Federal Reserve Board governor today, on further monetary easing, also helped to boost the stock indexes. The bulls this week have gained some fresh upside technical momentum. Traders are now awaiting Friday morning's key U.S. jobs report.


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Have Gold Bulls Lost All Hope on Mondays Lower Close?

Gold closed lower on Monday ending a two day short covering bounce off last Thursday's low but remains above the 20 day moving average crossing at 1759.50. The low range close sets the stage for a steady to lower opening on Tuesday.

Stochastics and the RSI remain bearish signaling that sideways to lower prices are possible near term but many traders view intraday bias in gold to be slightly to the upside for now and see the odds as being high to bounce off the 1705 area and moving higher. Closes below last Thursday's low crossing at 1701.70 are needed to confirm that a short term top has been posted. Closes above the 10 day moving average crossing at 1809.10 would temper the near term bearish outlook.

First resistance is today's high crossing at 1839.00. Second resistance is August's high crossing at 1915.00. First support is last Thursday's low crossing at 1701.70. Second support is the 38% retracement level of this year's rally crossing at 1686.80.

Anthony Neglia: Schizophrenic Gold Prices Will Hit $2,000

Anthony Neglia, president of Tower Trading, revels why gold prices will hit $2,000 and why they are so erratic in the short term. Does he have a Thanksgiving present for gold bulls?

Gold Bulls Find Support at the 20 Day Moving Average

Gold was higher in Sunday evenings overnight trading as it rebounds off the 20 day moving average crossing at 1760.90. If the bulls can maintain this momentum we would expect strong resistance at around 1917.9 to limit upside and bring another fall to continue the consolidation. Stochastics and the RSI remain bearish signaling that sideways to lower prices are most likely for the near term.

Closes below the 20 day moving average crossing at 1760.90 would confirm that a short term top has been posted while opening the door for additional weakness in to early September. Closes above the 10 day moving average crossing at 1812.00 would signal that a short term low has likely been posted.

First resistance is the 10 day moving average crossing at 1812.00. Second resistance is this month's high crossing at 1915.00. First support is last Thursday's low crossing at 1701.70. Second support is the 38% retracement level of this year's rally crossing at 1686.80. Golds pivot point for Monday mornings trading is 1796.40.

What is Next For Gold and the SP 500

Two of our partners, J.W. Jones and Chris Vermeulen, have partnered to give us special insight on how they are trading this market and how price action in coming weeks will offer clues about what lies ahead for U.S. equity markets......

Now that Mr. Bernanke’s speech is old news, what was the financial media thinking exactly? A significant number of financial writers have been anticipating discussion of QE III or QE III Lite which clearly were never even on the Fed Chief’s radar this week. The focus of the Jackson Hole Summit was how to achieve long run growth, not conduct discussion of monetary policy.

QE III will not be discussed openly until the next FOMC meeting in September, which noticeably was extended to two days. Besides the extension and the Fed Chairman’s prediction of growth in the back half of the year, the remainder of Mr. Bernanke’s speech was nothing more than a brief synopsis of what he has already said in the recent past.

While Chairman Bernanke focuses on the U.S. economy, I have been more inclined to monitor the action across the pond. Price action in Europe is having a major impact on financial markets here in the United States. Traders are monitoring credit default swap (CDS) spreads on European sovereign debt as well as on domestic and European banks.

Recently U.S. banks have seen the CDS swaps on their debt rising indicating that the marketplace believes their debt is a greater risk to investors. While the price action is nowhere near the 2008 & 2009 levels, current prices are relatively consistent with what was seen during the correction in the late spring of 2010. While there is no reason to panic at this point, this is a trend that I will be monitoring closely going forward.

For now, I continue to believe that equity markets will rally in coming weeks as conditions are extremely oversold. The price action so far today makes sense as the wild price swings helped flush out weak hands that were long. Consequently, the snap back rally pushed shorts into stop levels as well.

A significant move lower does not seem likely at this point, but a retest of the recent lows is possible, if not probable. I would remind readers that stock market crashes generally happen within the context of an oversold market. While the likelihood of a crash is remote, it is still possible and tight risk definition in this environment is warranted regardless of which side of the tape a trader is playing.

One price chart that I have been watching closely is the German DAX. The German DAX is presently a thermometer for traders to monitor the situation in Europe. The reason the German stock market index is so important is due to the financial strength of Germany within the Eurozone. Without Germany, the Eurozone would crumble in on itself and the Euro currency would be in trouble. Recently Germany’s equity markets have been crushed and the daily chart below illustrates the recent carnage:

Another metric I monitor regularly is market momentum. The chart below illustrates the number of domestic stocks trading above their 200 period moving averages. As can be seen below, the U.S. equity market has not been this “oversold” since back in 2009. Chart courtesy of Barchart.com.

In my previous article posted back on August 18th, I discussed the likelihood for stocks to pullback and put in some form of a basing pattern. I wrote the following statement in that article:

“It is entirely plausible that Mr. Market thrusts lower from here to shake out longs. If that scenario plays out it could potentially carve out a double bottom or another basing pattern which would give active traders another entry point to get long.”

Since August 18th, we have seen the S&P 500 push lower and there is a double bottom on the daily chart which is capturing quite a bit of attention in the trading community. I would also draw your attention to the wedge pattern that is also present. A breakout higher or lower out of this wedge pattern will be the clue that will indicate Mr. Market’s short term price direction. I continue to believe we will see a breakout higher, but a retest of the lows is always a possibility. The daily chart of the S&P 500 Index is shown below:

In the short to intermediate term, I believe we will see higher prices and a test of the key S&P 1,220 area or possibly a re-test of the key S&P 1,250 price level which corresponds with the March 2011 pivot lows. Additional resistance would come in around the 1,260 – 1.270 area which marks the neckline of the recent head and shoulders pattern which triggered the selloff in the S&P 500. The daily chart of the SPX below illustrates the key resistance areas:

Gold Analysis
My most recent article argued that gold prices were going parabolic and that a pullback was likely. We have seen a major pullback in gold prices. Admittedly, I was about $200 an ounce early on my call, but members of my service were able to capitalize on an option trade that captured 32% based on maximum risk through the use of a double calendar spread. While my timing was not precise, the juiced volatility in the GLD options allowed me to roll contracts forward and make additional adjustments to produce a strong gain for the service.

Some traders argue that gold prices are going to rally back sharply in short order, which I find hard to believe. Instead, I am of the opinion that we could see additional downside in the weeks/months ahead in gold prices. There is an ominous pattern starting to form on the gold daily chart which if it is carved out and triggered, it could produce the next leg of this selloff. The daily chart of gold is shown below:

While it is far too early to determine if a head and shoulders pattern will be carved out or if lower prices take place, I am of the opinion that this selloff will offer an attractive entry point for longer term investors. At this point it is a bit too early to get involved, but if my analysis is accurate the next leg of the gold bull market will be potentially extreme.

While I believe stocks will rally in the short to intermediate term, I am of the opinion that we have officially entered the next phase of the bear market. The next wave lower in stocks is going to be just as severe as the likely rally in gold.

The reason I believe gold will rally is primarily due to future weakness in Europe. If European banks have a credit crisis, a sovereign nation unexpectedly defaults, Germany leaves the Eurozone, or a currency crisis transpires gold prices should soar while U.S. equity prices tank.

While it is far too early to make that determination, if the S&P 500 puts in a lower high on this next advance higher and consequently takes out the recent lows on a selloff, the bear will be in full swing and gold prices should take off. The chart below illustrates my expectations for the S&P 500 in the future:

The next few weeks are going to be very telling about the future in domestic markets. Is this just a correction that pushes stocks higher by the end of the year, or is this the beginning of something far worse?

For now I am going with the latter, but price action in coming weeks will offer clues about what lies ahead for U.S. equity markets. Right now this is nothing more than speculation, but the next few months should be very interesting. Risk remains exceedingly high.

Check out J.W. Jones site at  Options Trading Signals.Com for a 24 hour 66% off coupon. And sign up for Chris Vermeulens unique services at The Gold and Oil Guy.Com

Hurricanes and Jackson Hole.....Are The Gold Bulls Back in Charge?

While the news of Hurricane Irene hitting the northeast and Ben Bernanke speaking from Jackson Hole Wyoming dominate the news gold bulls are quietly trying to take momentum back from the grips of the bears. And they just might be able to pull it off.

Gold was higher in overnight trading due to short covering as it rebounds off the 20 day moving average crossing at 1750.70. Stochastics and the RSI are bearish signaling that sideways to lower prices are possible near term while many traders see the 4 hour MACD crossing above the signal line as proving that a temporary low is formed at 1705.4 and intraday bias has turned neutral.

Closes below the 20 day moving average crossing at 1750.70 would confirm that a short term top has been posted while opening the door for additional weakness in to early September. Closes above the 10 day moving average crossing at 1805.20 would signal that a short term low has likely been posted.

First resistance is the 10 day moving average crossing at 1805.20. Second resistance is Tuesday's high crossing at 1915.00. First support is Thursday's low crossing at 1701.70. Second support is the 38% retracement level of this year's rally crossing at 1686.80. Gold pivot point for Fridays trading is 1748.70.

Warren Buffett Moves on Bank of America, Risk on Trade Moves Gold Lower

Gold prices continued to plummet this morning as news of Warren Buffett buying 5 billion dollars worth of troubled Bank of America preferred stock hit the news wires. Rumors were already supporting the equity markets as traders suspect Federal Reserve Chairman Ben S. Bernanke may announce steps to boost the economy in his speech tomorrow from Jackson Hole in effect putting the risk trade back on in equities.

Gold was sharply lower in overnight trading and has broken out below the 20 day moving average crossing at 1740.60 as it consolidates some of this year's rally. Stochastics and the RSI have turned bearish signaling that sideways to lower prices are possible near term.

Closes below the 20 day moving average crossing at 1740.60 would confirm that a short term top has been posted while opening the door for additional weakness in to early September. Closes above the 10 day moving average crossing at 1796.10 would signal that a short term low has likely been posted.

First resistance is the 10 day moving average crossing at 1790.10. Second resistance is Tuesday's high crossing at 1915.00. First support is the overnight low crossing at 1701.70. Second support is the 38% retracement level of this year's rally crossing at 1686.80. Gold pivot point for Thursdays trading is 1788.60.

Nick Brooks: Risk Trade On, Gold Trade Off

Nick Brooks, head of research and investment strategy for ETF Securities, says that gold's selloff is just a risk on trade for stocks and the fundamentals for higher prices are intact.

Has the Gold and Silver Market Topped Out?

Has the Gold and Silver market topped out? And have we seen the bottom in the Equity markets?

Today, Gold and Silver confirmed that they have topped out for the time being. The Equity markets are another story, and I’m not quite sure that we have seen a bottom put in place for those markets.

Gold futures closed down $100.00 an ounce at $1,761.00 today. Prices closed near the session low today in a mammoth sell off that featured profit taking, weak long liquidation and some panic selling that did do some psychological damage to the market, but no serious chart damage, yet.

There was strong follow through selling pressure Wednesday, after sharp losses scored on Tuesday, and a big and bearish "key reversal" down was confirmed, which is one early technical clue that a market top is in place. While it should be noted that twice this month bearish key reversals have occurred on the daily bar chart and prices went on to score new highs, the size of this key reversal is massive and makes it more powerful than the others.

Yesterday’s negative market action set the tone for the gold market today. The Japanese candlestick negative (bearish) engulfing line will be confirmed with a lower close today. Long Term, intermediate term traders should stay disciplined and hold onto long positions and protect profits with money management stops. Short term traders should now be on the sidelines and waiting for a new long entry point.

Gold Trend Analysis.....

Monthly Trade Triangles for Long Term Trends = Positive
Weekly Trade Triangles for Intermediate Term Trends = Positive
Daily Trade Triangles for Short Term Trends = Negative
Combined Strength of Trend Score = + 75

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David Banister: Is Gold on the Verge of Major Correction?

Just under two weeks ago I wrote about gold likely running to a final top with various levels ranging from 1862 to 1907 per ounce as likely. So far, we bottomed with a pivot at $1730 which I mentioned to my paying subscribers and we have run to as high as $1898 per ounce counting futures trading on August 22nd. What should we expect now as the most likely intermediate trading pattern for Gold?

Clearly, Gold is overbought on traditional technical measures such as RSI, MACD, and Moving Averages and more, so that is one warning flag. To wit, Gold historically pulls back pretty aggressively anytime it has run much above its 20 week EMA line. On a daily chart that stands at about $1730 per ounce, and on a weekly chart around $1580 per ounce. This week marks Fibonacci week #8 from the 1480 pivot lows of a wave 4 pattern I outlined for my subscribers as likely to turn gold higher to 1730 plus. In addition, we are 34 Fibonacci months into this 5 wave Bull Run from the October 2008 $681 lows.

I use Elliott Wave Theory combined with sentiment indicators and other measures to help determine major buy and sell pivots for Gold, and this methodology has been extremely accurate and successful for years. Right now I can count Gold as coming into a final 5th wave thrust to all time highs with sentiment running at huge extremes and technical patterns screamingly overbought. This action in Gold over the last many weeks reminds me of the final blow off top of the NASDAQ in 2000 as it ran from 4000 to 5000 in a few months and exhausted the buyers. This 5 wave pattern began 34 months ago and the final 5th wave usually drags as many taxi cab drivers onto the back of the Bull just in time to dump them off with a bag in their hand and no ride.

The bottom line is Gold is in a 13 year upwards cycle, and we are in about year 10 and it’s due for a likely pause in the uptrend, and certainly a correction of 10-15% would be normal in any massive bull cycle to kick all the bulls and latecomers off the back of the charging Bull. This pause should be a Primary wave 4 consolidation, where 2 and 4 are corrective and 1, 3, and 5 are bullish cycles.

Below is the latest chart on gold, not counting the overnight $1898 highs last night, but you can see that Gold is above the normal pivot high lines where we have seen major corrections over the past 34 month up cycle. A major parabolic blow off rise is of course possible, but hedging long positions and or considering shorting gold for the more aggressive players is advised:

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Anthony Neglia: $2,000 Gold By Thanksgiving

Gold prices continued to rally Friday as the precious metals hit another record high. It's been an extraordinary move. Anthony Neglia tells us what is behind that move in gold today?

Oil N Gold: Gold Weekly Technical Outlook

Gold surged to another new record high of 1881.4 last week and closed the week strong. Initial bias remains on the upside for 1900 psychological level and then 161.8% projection of 1309.1 to 1577.4 from 1478.3 at 1912.4 next. On the downside, below 1824.5 minor support will turn bias neutral and bring retreat. But downside should be contained above 1725.8 support and bring another rise.

In the bigger picture, gold's up trend from 2009 low of 681 is still in progress and momentum remains strong even though RSI in weekly and monthly charts are both in overbought region. As long as 1577.4 resistance turned support holds, we'll stay bullish in gold and expect the up trend to extend to 2000 psychological level next.

In the long term picture, rise from 681 is treated as resumption of the long term up trend from 1999 low of 253 and there is no sign of topping yet. Current up trend could now be targeting 161.8% projection of 253 to 1033.9 from 681 at 1945.6. Sustained trading above 2000 psychological level should pave the way to 261.8% projection at 2727.2.

David Morgan: Brace for Gold's Correction, Trade Silver

David Morgan, founder of Silver-Investor.com, says that gold prices are due for a correction and reveals how he's trading precious metals.

J.W. Jones: Are Gold and the SP 500 Behaving Logically or Rationally?

Back on August 7th the S&P 500 was in the midst of a panic induced selloff and the bulls were running scared. Prices were collapsing and the bulls were racing to the exits. In the following weeks, piles of money flew out of equity mutual funds as the retail investors rang the register and pulled their money out near the lows which seems to be a regularly recurring event.

While most market participants were clearly panicking, I was sitting back watching the market push lower with complete focus on being ready to initiate long positions near the lows. I sent out multiple warnings to members of my service to raise cash and reduce risk. I sat in cash and watched the madness unfold in real time.

Admittedly I did not expect the selloff to be as severe as it was and unfortunately I did not get involved with any short exposure. However, my focus is always forward looking and opportunities will present themselves again and protecting my trading capital is always my primary focus.

My article that went out August 8th was focused on downside momentum in the marketplace as well as key areas where I expected price action to hold at support. I was expecting the S&P 500 to find support around the 1,130 price level. I will be the first one to admit I am not one for making bold predictions, but I’m not scared to identify key long term support levels which have the tendency to mark bottoms in price action.

While price ultimately undercut my 1,130 target price level on the S&P 500, the following day a giant reversal bar formed which captured my interest and on August 10th I entered long positions with tight stops below the recent lows and members and I were quickly rewarded. I closed the remainder of the trade today and locked in a 32% return based on maximum risk in essentially 1 week using a basic option strategy which levered up my position.

Now I find myself with very little exposure and I’m pondering what to do. First of all, a quick glance at the short term momentum charts illustrates that price action is still extremely oversold. However, oversold conditions could worsen further potentially. The chart below illustrates the amount of stocks trading above their 20 period moving averages:

It is obvious that price action in the S&P 500 is clearly oversold and equities have considerable room to rally. However, I would point out that oversold conditions can be worked off as function of the passage of time and not just higher prices. I continue to believe that we will see the S&P 500 test the 1,220 price level and will likely move on to the 1,250 area. If price action can work above the 1,250 price level the neckline of the head and shoulders pattern will act as a key resistance area. The daily chart of the SPX is shown below:

The key levels outlined correspond with major support areas that are either carved out by previous pivot lows or through Fibonacci retracement levels. At the very least, I expect price action in the S&P 500 index to test near the 1,220 price level as it will mark a .500 Fibonacci retracement area.

I would not be at all shocked to eventually see the neckline of the head and shoulders pattern backtested to verify resistance. The head and shoulders pattern that helped propel prices lower is clear when looking at the weekly chart. I first wrote about the pattern back on July 8th and presented the following chart:



It is entirely plausible that Mr. Market thrusts lower from here to shake out longs. If that scenario plays out it could potentially carve out a double bottom or another basing pattern which would give active traders another entry point to get long. I think we are weeks from having a possible test of the recent lows on the S&P 500 as it is going to take the broad marketplace quite a while to digest the selloff and work off oversold conditions as a function of time and/or price.

Price action would be healthier if we pulled back a bit here before attempting to attack the resistance at the key 1,200 price level on the S&P 500. If prices continue to race higher in a short period of time I would consider the price action to be more of a warning that lower prices are around the corner.
While anything could happen, I believe that the S&P 500 will test the recent lows which need to hold desperately. I want to be a bull very badly, but right now unfortunately I cannot be bullish because a variety of indicators and analysis suggests that lower prices may await us.

By now most readers recognize the monster bull market that gold and silver have enjoyed for nearly a decade. I do not intend to provide a history lesson, but during the last equity selloff investors and traders alike fled to Treasuries and the yellow metal for safety while nearly every other asset class sold off. Gold put in a new all time high on August 11th and price quickly sold off.

Since then we have seen gold climb back up and at this point in time it appears to be poised to test the recent highs. Some market pundits say gold is in a bubble while others say prices will work higher. In my estimation as long as the Federal Reserve has loose monetary policy gold prices will continue higher over the long term. At this point in time it does not appear likely that the Federal Reserve will tighten monetary policy until after the election at the very earliest.

Instead of arguing the economics behind gold prices and the inflation/deflation debate, I am more interested in where price action may be headed. At first glance on the daily chart of gold futures it could be said that gold has accelerated significantly higher in a short period of time. There are plenty of traders that believe gold has gotten ahead of itself and desperately needs a strong correction to shake out weak ownership.

Interestingly enough these same traders and investors have been calling for a major selloff in gold for quite some time. While I have written about coming corrections, I have always maintained a long term bullish stance on gold and silver due to the Federal Reserve’s current monetary policy.

Yet again, I find myself expecting to see gold selloff in what could play out as a double top on the daily chart. I am going to be watching the price action closely looking for a possible entry to take advantage of lower prices. At the same time, I am not willing to go charging in until I see some confirming signs that gold prices will head lower.

If gold prices push above the recent highs with additional momentum gold will trade higher yet. The next few days should be very telling as a large move could be setting up in the yellow metal in the near term. The daily chart of gold is shown below:



While the daily chart clearly illustrates the potential for a double top to emerge, the weekly chart has a more parabolic look to it. If a significant correction in the price of gold sets up for traders to take a longer term short trade, then a major reversal or topping pattern should come into focus in the next few weeks.
While a short term trade to take advantage of lower prices in gold might produce some fast money, longer term traders need to be patient and let gold confirm lower prices before getting involved. The weekly chart of gold is shown below:



Ultimately I do believe we need to see a healthy pullback in gold that works off some of the overbought conditions that are present in the price action. If investors continue to view gold as a safety trade it is obvious that prices could continue higher based on uncertainty coming out of the sovereign debt crisis going on in Europe. As of right now, it appears gold could go either way but probability favors the downside.

Logically it would make sense that if the S&P 500 rallied gold would selloff. Unfortunately Mr. Market rarely embarks upon the logical until he has convinced enough market participants to behave irrationally. It should be interesting to see what Mr. Market has up his sleeve this time.

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Dave Blais: History Suggests Gold is Topping Out Soon

Today The Gold ETF Trader would to introduce Dave Blais. David recently left a six-figure salary to trade the markets full time since his real passion is gold and silver stocks. We have great respect for Dave’s insights, and the fact he backs up his insights and philosophies with his own money. Here's what Dave is thinking this week........

Gold has been on an upward tear lately – no surprise given the uncertainty over how the western world will deal with its debt. What could be a surprise for investors (but mostly traders) is that history suggests the odds are high that gold will top for the year sometime in the next three weeks.

A feature of the current gold strength is it is happening in the heart of summer, a time when gold is usually weak. Though rare, this "out of season" strength in gold has happened before. When it does, something interesting occurs, gold makes a top that will not be bettered for the rest of the year, in August or early September.

In the last 30 years, gold has had only two summers with the type of outsized gains gold is making this summer (a rise of about 20 percent or more). In both cases, gold topped out for the year on either side of Labour Day.

In 1982, gold had a surprisingly strong summer – rising more than 50 percent – and gold topped for the year in early September. The news then driving the gold price was the threat of a Mexican debt default … sound familiar?

In 1990, gold had another unusually strong run in the summer and was up almost 20 percent, which is closer in magnitude of the current rise (up about 22 percent when gold briefly topped $1800). That summer run in 1990 topped out in late August, and gold did not exceed that top during the rest of that year.

In 1990, gold had another unusually strong run in the summer and was up almost 20 percent, which is closer in magnitude of the current rise (up about 22 percent when gold briefly topped $1800). That summer run in 1990 topped out in late August, and gold did not exceed that top during the rest of that year.

There are other factors hinting gold will need to take a breather soon.


Of note, the gold mining shares are not confirming this rise in gold. Take the bellwether gold mining stock Newmont Mining for example. As of this writing, Newmont is still wellbelow the high of $65.50 it made last year, even as gold is hitting new record highs day after day. This is a potential warning called "divergence" that should not be ignored.

Overall, Canaccord Genuity research shows that the senior and intermediate gold stocks in their coverage universe are discounting a gold price of $1,409 per ounce.

Then there is the curious chart for gold that is making what looks like a “blow-off” top.

The current chart formation for gold is eerily similar to that of silver’s chart when it went into a terminal rise earlier this year. That steep rise in silver quickly gave way to a punishing decline that knocked some 30 percent off the silver price in a matter of days. In turn, the stocks of silver miners were pounded.



These types of blow-off tops are usually not sustainable – and they don’t tend to end well because of what causes them. The rapid rise we are seeing now appears to be fuelled in part by a “short squeeze."

Fundamentals like the debt crises in Europe or the recent downgrade of US debt can explain some of the factors behind the rise, but the news is not the sole cause of this fast, wild part of the current rise.

Wrong-footed traders who made a mistake by going short (betting on a decline in price) in a big way– are being forced to buy back gold to close (or “cover”) their short positions that have gone horribly wrong as gold relentlessly rises. Their urgent buying of gold to close their short positions (and cut their losses) causes the gold price to rise further, causing more shorts to cover in panic, creating a feedback loop, and a price spike, that may quickly exhaust itself.

That a short squeeze has been evident in the gold market lately, in particular, after gold recently broke above $1680, has been noted by some market watchers who monitor the trading of gold future contracts. Ed Steer, who publishes Ed Steer’s Gold and Silver Daily for Casey Research, commented in his August 13 bulletin: “the open interest numbers were indicating for the reporting week, the rally in gold was pretty much all caused by short covering.”

Short squeezes tend to end abruptly when the short covering finally exhausts itself.

If gold does turn tail soon, how far could it fall? A good target for a drop is the area that has held anytime gold has declined during the last two and a half years, its 150 day moving average. Currently gold’s 150 day moving average stands just below $1500/ounce.

History is a guide, not a bible.  But there are some recent and longer term charts that suggest the gold price could top out in the next few weeks. And of course, long time gold followers know it's just at times like these, when excitement is running high, and everybody thinks they know what to expect that gold turns tail, and breaks the hearts, and wallets,  of the unwary.

It Looks Like Gold’s Cyclical 34 Month Run is About to Run Out

David Banister of  The Market Trend Forecast just updated his previous gold forecast which was spot on (no pun intended).....Now he has a new forecast for what to expect next which I'm sure all of our readers will find interesting......

Gold hit $1805 tonight in trading, a Fibonacci Fractal figure I gave out a few weeks ago as a possible top. We are close to a near term high in Gold and Investors should be trimming back positions on this run. Back as recently as $1600 an ounce I forecasted a run to $1805 for Gold using fractal and wave analysis and behavioral patterns, now that we hit that figure it’s time to update the cycle and where we are.

Here is the Chart I did at 1599 gold on July 22nd:

I have been a Gold Bull since November 2001, having conducted seminars for public employees on investing back then and advising gold mutual funds and gold stocks very early. I have talked in the past about a 13 fibonacci year Gold Bull cycle that will end around 2014, so there are still three years left in my opinion. However, gold does have peaks and valleys and has moved in very clear Wave and Fibonacci fractal patterns for years.

Given the history of how I have forecasted Gold, I am going to share my short term and moderately long term views on where we are in the up cycle which I expect to last 13 fibonacci years to 2014. Right now it is my opinion that we are completing a MAJOR WAVE 3 up in Gold from the 2001 lows from $300 an ounce. We have had a 34 fibonacci month rally since the October 2008 lows of $681 per ounce. Every Taxi driver, CNBC guest or analyst, and 200 Radio and TV commercials a day are blaring to buy Gold. This is how intermediate tops form.

The rough wave count is below:
Wave 1- 300 to 1030
Wave 2- 1030 to 681 (October 2008 lows)
Wave 3- 618- 1805 currently, 34 Fibonacci month cycle. *Likely high is 1862-1900*
Wave 4- Due up next… a multi month consolidation.

It is my opinion that at the top of a Major wave 3 in Gold, that everyone should be univerally bullish, that gold radio and TV commercials would be all over the place, and that everyone on CNBC would be talking about and recommending Gold.

Sound familiar?

So the likely conclusion to this massive parabolic blow off top of Wave 3 is nigh. Most recently I upped my estimates to as high as $1900 per ounce with $1805 already here as of tonight, which was one of my figures by the way many weeks ago. Gold should under normal circumstances top between 1862 and 1900 per ounce fairly soon should the 1805 level not hold as a high. At that level we will be dramatically overbought. 

We are already running 15.7% above the 20 week moving average line which historically is about as high as Gold will get before correcting hard and consolidating. A final lift to the 1862-1900 ranges should lead to a fairly good sized correction to the downside designed to kick all the late comer Taxi Cab driving buyers off the bull’s back. With that said, at $1805 I would be trimming my position and or hedging my long positions aggressively.

Watch for a Maximum Gold top at 1862 -1900 per ounce and keep in mind 1805 is being hit tonight and that is a qualifying fibonacci fractal top as well. Investors should be trimming back positions and looking to re-deploy back into Gold at better prices. We could get a huge blow off top over 1900, but it would be very very rare if it happens.

If you’d like to stay ahead of the peaks and valleys in Gold, Silver, and the SP 500 (Recently called a tradable bottom at 1101), then check out Market Trend Forecast for a 33% 48 hour coupon or sign up for the occasional but infrequent free updates.

Here is Davids video interview on this call with The Street.Com which includes some of his calls on silver....

What is Next For The SP 500?

Three weeks ago he began urging members of his service to reduce risk and raise cash. He pounded the table incessantly for the past two weeks to continue to raise cash and reduce risk. He has not issued a trade alert to members in over 3 weeks, but by acknowledging risk ahead of the debt ceiling debate he was able to sidestep one of the worst weeks in U.S. financial markets since 2008.

Here's what else J.W. Jones saying about the potential bottom in these markets........

Armed with cash and my emotional capital intact, I am going to be able to take advantage of price action in coming days and weeks. I am expecting a bounce in the near term, but the downgrade of U.S. debt on Friday by the S&P rating agency could have a dramatic impact at the open on Monday morning. I intend to remain in cash until the news is digested by the marketplace.

My first public warnings about a potential top came back on July 8 when I posited an article which illustrated the bullish and bearish position of the market at that time ahead of the debt ceiling debate in Washington. The following excerpt and chart was taken directly from that article:

“In addition to the short term overbought nature of the S&P 500, the daily and weekly charts clearly illustrate a head and shoulders pattern. The head and shoulders pattern is a typical characteristic of a topping formation that is often found at several major historical tops. The daily chart below illustrates the head and shoulders pattern: 




This particular head and shoulders pattern is not getting a lot of recognition in the media which lends it a bit more credence. If we start hearing about this pattern on CNBC or FOX Business I will expect the pattern to fail. Call me a contrarian, but in the past when major television personalities are constantly talking about chart patterns they almost always fail.


Besides just technical data points, continued worries stemming from the European sovereign debt crisis helps the bear’s case further. In the event of a major default in the Eurozone, the implications to the financial sector of the U.S. economy will come into focus. It is widely expected that a banking crisis in Europe could spread to some degree to the large money center banks in the United States. Clearly this would have negative implications on price action in domestic equity markets.

In addition to the European debt crisis, the United States government has a looming credit crisis of its own. With politicians currently arguing over whether to raise the debt ceiling, bears point out that if the United States defaulted on its debt (unlikely) the implications would be severe. However, many traders and economists point out that the end of QE II may have dramatic implications on price action as well. The current uncertainty around the world lends itself in favor of the bears.”


Clearly the head and shoulders pattern has played out and barring a breakout over the 2011 highs on the S&P 500, an intermediate to long term top has been carved out. In fact, I believe we are likely entering the next phase of the ongoing bear market that started back in 2000.

Panic level selling pressure has been registered and the S&P 500 is in an extremely oversold condition as is evident by the charts below:
Stocks Above 50 Period Moving Average



Stocks Above 200 Period Moving Average

The charts above illustrate that we are extremely oversold in the intermediate term time frame and that we are nearing extreme oversold conditions in the longer term time frame as well. I am expecting a bottom to form in the next few weeks which should offer outstanding risk / reward long entries for short to intermediate term trades.

Another indicator that is showing some extreme fear in the marketplace is the Volatility Index (VIX). The VIX has traded in a choppy pattern for quite some time before finally pushing higher the past few weeks.

The daily chart of the VIX below demonstrates the fear in the marketplace:



Almost every indicator that I monitor is screaming that the current market is extremely oversold and fear levels are running at or near 2011 highs. When the masses are fearful and the S&P 500 is this oversold, I want to be looking for opportunities to get long risk assets.
While consistently picking bottoms is nearly impossible, there are a few key levels on the S&P 500 that I’m going to be monitoring.

The weekly chart below illustrates the key support levels which could hold up prices and also future targets for the likely reflex rally:



Once a bottom has been carved out, the use of Fibonacci Retracement and/or Extension analysis will help me determine more precise resistance levels. We could see further selling pressure this week before we see a pronounced bottom carved out. With volatility at these levels price action will be pretty wild. I intend to use smaller position sizes with wider stops to start layering into exposure as opportunities present themselves.

By sitting on the sidelines during this downside move, members of my service are ready to take advantage of lower prices to get long. Now the interesting part will be how Mr. Market handles the downgrade of U.S. debt on Monday ........


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The SP 500 Could Bottom at 1096-1100....Here is Why

From The Gold ETF Trader contributor David Banister......

The markets bottomed last Friday at 1168 roughly on the SP 500, then violently reversed with a 47 point rally to 1215. I had forecasted a likely short term bottom at 1176/1188 ranges with a possible 60 point rally coming. With that said, I didn’t think it would all happen in nearly 1 trading day.

On Friday night, as most now know… Standard and Poor’s downgraded the US Debt rating to aa+ from AAA. I would suspect that the bigger players already knew this a few days prior and were short the market with that information. My pure speculation here is that within the first hour that some of these same participants will have covered their shorts and probably be looking to buy some calls or get long certain stocks if there is short term panic and we reach oversold short term extremes.

Clearly though the patterns suggest we are in a bear cycle as evidenced by the 1233 break last week, but there will be tons of trading opportunities with violent rallies along the way as well, trying to time those will be the hard part.

One of the downsides to owning shares in companies in the public markets is that panic and hysteria can very quickly mis-price a security that represents shares in a company to well below where it would be valued as a private ongoing business. This however also represents opportunity for those with the right time horizon and the stomach to accumulate when there is a mis-pricing of those securities.

I can already find many samples of small cap firms where they are not trading dramatically above cash per share and certainly below total fair value per share given their assets. I will be looking at some point to scale into a few of these companies given that they are trading below a fair private value in the public markets.

With that said, where does the broader market go on Monday? Nobody knows, and certainly the sentiment gauges as of last Wednesday had turned historically very bearish prior to the Thursday and Friday drops.

Note below we have an increase as of last Wednesday of Bears by 18% to historically extremely high levels. Bulls were down to 27%, which is historically about 12 points below the average.....

Many traders who were formerly clinging bullish were caught in a stop loss and margin call induced liquidation late in the week. I would guess that hangers on will be equally caught on Monday this week in margin calls and possible stop loss sweeps.

The smart thing to do is not panic and make sure you understand the valuation of the business you own shares in if you have stocks, and decide how crazy the market participants may get in their voting near term.

When the SP 500 fell below my 1233 line in the sand, it pretty much confirmed a new Bear Market for me, even with the 1168 pivot on Friday. The last very outside shot for Bulls intermediately was for 1168 to hold and run, but we may or may not do that on Monday or this coming week. The Elliott Wave patterns are confirmed bearish with the 1233 break, and so other than some miraculous turnaround off the 1168 pivot that holds…we must remain cautious.

I was looking for a trading range from 1176-1260/80 for a while as MOST LIKELY…. but all we can do is find out to what extent cool heads prevail or not this coming week and I’ll update from there. Right now the weekly charts are super oversold like November of 2008. With that said, I make a case for a possible bottom around 1096 now on the SP 500 as possible worst case.

In this history of the markets, we had a major bottom on the SP 500 in 1974 which was followed by a 25 year bull cycle to 1999. On March 9th 2009, we bottomed at 666 and re-traced a Fibonacci 61.8% of that entire 25 year bull cycle over 8-9 years in ABC Fashion, which would makes sense.

Just prior to that I forecasted a major bottom on February 25th with an article, “Is the Market about to Bottom and Nobody Knows It?” You can Google it to find it.

Now with hindsight, we see 1370 hit on the Bin Laden killing and that was a 78.6% retracement of the 07 highs to 09 lows. However, dialing back to the 1974 low, we rallied into 1977 in 3 wave fashion to the 1977 highs, went sideways awhile… we then had a major drop from 107 to about 87 on the Index over about 12 months… corrected a good 20%. 

Does history repeat in 2009-11? We rallied in 3 waves, we have gone sideways… and then we drop 20% or so? If so, that takes the SP 500 to about 1096… Another 104 points. At 1096 that would represent a 38% Fibonacci retracement of the Bull cycle from 666 to 1370.

Food for thought… if you’d like to get more frequent forecast updates on the SP500, Gold, and Silver please look at Market Trend Forecast.Com and take advantage of our 33% discount option.

Phillip Streible: New Gold Target $1830

Phillip Streible Senior Market Strategist at MF Global has updated his six month target for gold to $1830. Silver to go higher too.




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