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Gold: the Bull's thread

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((Comex gold peaked at $732 oz. on May 12, 2006, and in early September sunk below $600 oz))

 

Gold Stocks

 

...the best way to deal with this market over the coming months will be to use periods of weakness to accumulate high-potential exploration-stage gold stocks in readiness for the 2007-2008 advance.

 

An intermediate-term bottom was probably put in place for the AMEX Gold BUGS Index (HUI) last Tuesday (13th June) when the index spiked down to 270. The HUI has since begun to rebound and this rebound will no doubt prompt many ardent gold bulls to announce that it's "off to the races" again, but by far the most likely outcome is that last week's low will be tested once or twice over the next several months before a major advance gets underway.

 

As things currently stand, the HUI is challenging resistance at around 300. If it can get through this resistance over the coming week or so then the initial rebound following last week's intermediate-term bottom could carry as far as the 330s. As noted on the following chart, a move up to the 330s would constitute a 50% retracing of the May-June decline. Such a move would, we think, create a short-term selling opportunity, but selling the short-term rallies in the gold sector is probably not the best approach for most people. Rather, we believe that the best way to deal with this market over the coming months will be to use periods of weakness to accumulate high-potential exploration-stage gold stocks in readiness for the 2007-2008 advance.

 

HUI_160606.gif

 

Between the end of January and the 11th May peak in the gold sector there were significant bearish divergences between gold stocks and gold bullion. Specifically, when the HUI moved to a new all-time high during April the HUI/gold ratio remained below its January high, and while the HUI was pushing higher during late April and early May the HUI/gold ratio was falling. However, we have just seen a potentially significant positive divergence in that last week's plunge to a new low by the HUI was not accompanied by a new low in the HUI/gold ratio.

 

HUI_gold_160606.gif

 

Gold

 

The following daily chart shows that the August gold futures contract has good support in the 550s. This support was tested last week and the initial test was successful, with gold now in 'rebound mode'. A 50% retracing of the May-June decline would take the gold price up to the 640s, which happens to be near the 50-day moving average.

 

gold_160606.gif

 

Almost regardless of how much of the May-June decline is retraced during the current rebound, gold's ultimate correction low is probably not yet in place. However, we don't expect the ultimate low to be far below last week's low and would be surprised, for instance, if gold were to trade below $500. The biggest short-term risk is that the industrial metals such as copper, zinc and nickel -- metals that are over-valued relative to gold -- drop to much lower levels and gold gets taken along for the ride (just as it was taken along for the ride when the industrial metals were rocketing upward between November of last year and early May of this year).

 

...MORE:

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I saw this cahrt on Kitco last week suggesting that a 50% retracement is common in this rally. If the pattern holds we should see a bounce from around here although it may not really take off untill later this Summer.

 

old50pct21fp.png

 

old50pct8mk.png

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As I have posted elsewhere,

I reckon we will see a bounce now in Gold and Gold shares. probably to something near $650,

and then a retest of the recent lows. I would not be surprised if we saw the retest in August,

the usual time for seasonal lwos in Gold.

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Thanks for the charts and comments, DrB. Personally, I think there's a good chance that the bottom already IS in for both gold and silver, based on 200dma support and hugely oversold RSI. The 200dma is "line in the sand" support - currently it stands at $547 and is moving up by about $0.8 per session, so if we get a decent bounce over the next month or two, the 200dma could be dragged up to around $575 or so.

 

Also: Gold ran from $570 to $730 with the RSI starting from higher levels than from where it is now, so I think it's not impossible that we might be off to new highs sooner than anyone might imagine.

 

The gold/precious metals markets make the oil markets seem almost comatose by comparison.

 

 

 

 

Some interesting posts in ADVFN's gold thread:

 

************************

 

mab - 18 Jun'06 - 12:06 - 17758 of 17761

 

 

***A MUST READ FOR ALL GOLDDIGGERS***

 

by sinclairs right hand man dan the man norcini. Sheds great light on the massive price correction in gold over past few weeks. This is what we gold bulls are up against!

 

------------------------------------------------------------------------

 

Remarkable Development in the Gold Market

http://www.lemetropolecafe.com/

 

By: Dan Norcini

 

Over the past years that I have been privileged to participate in this fledgling generational bull market in gold, I have written a goodly number of essays detailing the Commitments of Traders reports and analyzing how that relates to the price action experienced in the gold futures pit at the Comex.

 

Having been at this game for a long time now, I can usually get a pretty good feel for who is doing what during the course of the week by comparing the price action in the pit against the previous week’s COT report and looking at the long term trend of a market. In what I consider to be “normal” markets, a rising market in an established bull trend will usually see the bulk of the speculators, both large and small, on the long side with the bulk of the commercials taking the opposite or short side. That only makes sense as commercials/producers are using the speculator buying to implement scale-up selling programs to lock in profits. They sell a little here and a little there and continue to do so as prices rise, assuring themselves of a profit and minimizing risk which the speculators are more than willing to assume in exchange for an opportunity to make a profit. The higher the market rises, the happier these true or bona-fide hedgers are as that means higher selling prices for their goods.

 

Over the past years in this gold market we have witnessed some anomalous patterns in the open interest activity that I have detailed in great extent in various essays I have published out on the web. Unlike “normal” markets, the pattern for gold has been for the commercials to meet determined speculator buying in gold with fierce resistance all the way up in a manner that is normally not consistent with price maximizing selling. Upward progress is met, not with commercials standing aside and allowing the funds to drive the market north and then selling lightly into that buying only enough to cover their immediate hedging needs, but rather with fierce and determined selling that fights and contends against all upward progress. I have therefore come to expect this pattern as the norm in the gold market.

 

Imagine my surprise then to learn from today’s release of the COT report that the commercial category went even one step further than I had come to expect from them. Their normal pattern has been to sell with steady determination but only into rising prices as they attempt to cap the price rise and resist the upward progress of the metal. Once the fund buying has abated or stalled, they then launch a counterattack of heavy offers which overpower the bidders in the market. This has the intended effect of causing a quick retreat by the locals who front run their offers and proceed to knock the market down into the sell-stops below which are then automatically touched off turning speculators into sellers. The process then feeds on itself producing an avalanche of selling which trips all the short term technical oscillators and has the black boxes lighting up the computerized platforms with even more speculator sell orders which soon turns into a veritable blood letting.

 

The cartel of commercials then use this forced speculator selling to buy back or cover the short positions they had built up over the course of the price rise congratulating themselves for having fleeced the momentum based trading funds who chased the market higher. We have seen this pattern repeat itself going all the way back to 2001.

 

What is quite extraordinary about today’s report was that it detailed something which I have not seen during the course of this entire bull market since 2001, namely, increasing short sales by the commercial category in the midst of a falling market – not just a falling market, but a precipitously falling market at that. This is a startling new development.

 

What is even more remarkable is that the big trading funds, instead of dumping their longs into the lap of the waiting commercial cartel, actually appear to have been buying on the way down! This also is a FIRST! In other words, we have seen in one week a COMPLETE REVERSAL of the norm of the last 5 years in the gold market. As a matter of fact what I had been expecting to see was a REDUCTION in the net short position of the commercial category and a reduction in the net long position of the trading funds. I assumed that the gold cartel would dupe the trading funds into establishing a huge number of new short positions even as that same category sharply cut the number of long positions. I also assumed that the same thing would happen among the small spec category.

 

What actually happened was the exact opposite except for the small specs who ditched more shorts than they did longs! The big trading funds INCREASED their net long position as the market fell – something they have not done throughout the history of this past bull market. Instead of piling on a ton of new shorts, the trading funds added only a bit more than 700 new shorts and almost 4,000 new longs into the price weakness. Could it be that this category is finally wising up and actually learning to beat the cartel at its own game? We will have to see but the fact that this has occurred at all is nothing short of astonishing.

 

Let me try to put it another way. The COT report covers the activity of the traders from the Tuesday of the week past to the Tuesday of the current week. In other words, if we want to learn who was doing what from Tuesday to Tuesday we can get a very good picture from looking at that report. Unfortunately the report does not tell us who was doing what on Wednesday, Thursday and Friday of the current week. That will show up in the following week. Still, we can get enough information to correctly identify the transition of players for a week’s interval of time.

 

Having established this we can now go back to the gold chart and look at the price action of the market from Tuesday of last week, 6-6-2006 to the Tuesday of the current week, 6-13-2006.

 

 

 

On Monday of last week, the price of August Comex Gold closed the session at 648.70. This will be our starting point for the analysis that follows since the COT report will show us who did what from the following day until Tuesday of this week as compared against the price action of gold.

 

The next day, Tuesday, 6-6-2006, gold dropped down to 634.70. Wednesday it went down to 632.60. Thursday it took another huge hit and closed down at 613.80. Friday it closed down at 612.80. The following Monday, at the start of this week, it continued its downward progress and closed at 611.30. Tuesday, the final day of this week which is covered by the COT report, it was walloped for a gargantuan hit of $55 closing all the way down at 566.80. It was further mauled overnight beginning in the afternoon Access session on into Tuesday evening when it began to gets it footing in the late afternoon Asian action and early morning European trading session. To sum up – gold went straight down from Tuesday of last week thru Tuesday of this week to a tune of a loss of $81.90, and if you include the Tuesday overnight action, a whopping loss of $102.30 in one week!

 

To further amplify on what I have described previously - Whereas the normal pattern of the last five years in gold as I have described above would have expected us to see the commercial cartel covering or reducing their shorts and booking profits, the exact opposite occurred – the commercial shorts, aka known as the gold cartel, SOLD THE ENTIRE WAY DOWN – instead of REDUCING the number of their shorts and booking profits they actually PUT ON MORE OF THEM! The COT report reveals that they added a total of 5,282 BRAND NEW SHORTS as the price of gold collapsed. They have NEVER done this before during any time in this bull market in gold since it began way back in 2001.

 

What does this mean? – quite simple – it means that there was a concerted effort on the part of this group of short sellers to FORCE THE GOLD PRICE DOWN. They had absolutely no interest in booking profits on existing shorts as the price tumbled some $100. This is a stunning development as it clearly indicates a concerted attempt to derail what was becoming a runaway bull market in the gold price that was threatening to garner far too much public attention. Remember - gold’s perennial function is to serve as the financial “canary in the coal mine” which alerts the workers to hidden, toxic dangers. Quite simply, gold’s stunning rally to $730 in the matter of a few months time was sending shock waves through the corridors of the monetary elites who were “looking into the abyss” if gold continued its meteoric rise. Something had to be done and quickly or this thing was going to get out of hand.

 

Along that line, this past week I had sent some comments up to my good friend Bill Murphy over at GATA’s fine site, www.lemetropolecafe.com detailing both in written and in visual chart form what appeared to me to be a deliberate assault that was being launched against the gold market beginning in the thin and illiquid conditions of the aftermarket Access trading session as soon as it opened for the resumption of trading in the afternoons. Bill included those in his daily Midas reports. Also, my trading buddy and good pal Jim Sinclair (www.jsmineset.com) had posted the same comments along with the price charts detailing the attack as shown on the 30 minute interval chart. As a trader who trades exclusively in the CBOT’s full-sized electronic gold contract every single day, I am quite attuned to the normal order flow into that “pit”. What caught my eye immediately beginning last week and continuing with the assault on gold early this week, was the huge size of sell offers that came flooding into those pits late last week and earlier this week during the normally comparatively quiet afternoon session. Offers of 500+ to sell were relentlessly pounding the CBOT electronic gold contract. One enormous sell order of 943 hit the pit much to my stunned amazement. I found myself talking out loud to myself saying, “What in the world is going on here? Did I miss something happening in the world? Did someone Central Banker or Fed governor say something? Who in the heck is selling like this?”

 

To give you some perspective – I rarely see buy or sell orders in the early afternoon session exceeding 100 contracts going either way. Clearly some entity was attempting to mercilessly pound the price down into lower levels looking to run stops in the thin conditions and set off a cascade of further selling which would then be expected to carry over into the TOCOM session that evening driving the price even lower as Japanese selling took over.

 

So the question becomes, who would do such a thing and why?

 

Then it all began to make perfect sense if one understands what both Jim Sinclair and Bill Murphy and the GATA gang had been saying about this recent price decline in gold, namely, that is was an orchestrated and deliberate attack by the Central Bankers of the West to break the back of the gold market and defuse the warning message that gold was sounding abroad. In our opinion, it started with the Bank of England either mobilizing its own gold supplies or gold from the IMF. This gold was then used to temporarily flood the market with extra supply with which to overwhelm the soaring investment demand thereby knocking the price of gold, and other commodities sharply downward to give the intended effect that fears of inflation due to commodity price rises had been effectively contained. In order to affect the most carnage on gold, this surreptitiously mobilized supply of extra gold had to be accompanied by a concerted and well-coordinated effort on the part of the Western Central Bankers and some of their allies of tough anti-inflation talk giving the impression that the CB’s were going to be especially vigilant to nip any inflation genie in the bud.

 

Think about this a bit and see if we can put two and two together. If you knew in advance that the BOE was about to make a move to derail the surging copper market and bail out its friends at the LME which was on the verge of witnessing a default among some of its members who had stupidly sold short into a roaring bull market in copper, and you knew that they would also do this by launching an all out assault on the base metals and especially on the gold price using mobilized Central Bank vault gold, what do you think you could conclude? Answer – the price of gold was going to fall sharply as it would be temporarily overwhelmed by the extra supply hitting the market. If you knew this would you not sell with complete reckless abandon? Would you not attempt to chase the market down as far as you could pushing into one set of sell stops after another? Would you not do this in the hopes of wrecking as much carnage on the market as possible and then eventually clean up by buying all those shorts back after you had broken the back of nearly every would-be gold bull on the planet? I know I sure would have! You would be a complete nitwit not to recognize such a gift horse being dropped into your lap!

 

Well, that is exactly what I believe occurred. The BOE in conjunction with their cohorts at the Fed, would have tipped off its agents, or better yet, would have plotted with its agents Goldman Sachs, et al, that is was about to mobilize its gold or the IMF’s gold and dump it onto the market. In the meantime Goldman Sachs and friends were unleashed to smash the paper markets in gold at both the Comex and the CBOT, and run as many speculators out of it as possible while seeking to inflict the most technical damage possible on the price charts. The intended effect was to be to so completely dishearten and discourage the public and the investment funds from buying gold that it would suffer an ignominious death and fall off the radar screens of investors. That would effectively get it out of the headlines and remove the pesky metal’s telltale warning signs about the true state of the global economy. No more gold stories equals happy Central Bankers.

 

There is no doubt that the plan worked to near perfection – I have never seen so much near total despair and disillusionment among the friends of gold as I witnessed this past Tuesday and early Wednesday. Out of everywhere, as if on cue, analysts confidently pronounced that the bull market in gold and in commodities was over, finis, kaput!

 

However, a funny thing happened on the way to the forum. Someone showed up to meet the brazen sellers and began to buy in huge lots. Gold quickly ricocheted off the $545-$550 level running all the way back to near $590 in two days. Today, Friday, 6-16-2006, when the same group of sellers once again attempted to break the back of the gold market which had come roaring back in overnight trade in both Asia and in Europe, and began their coordinated selling assault during the New York trading session (what else is new), out of nowhere buying came out of everywhere forcing them to beat a hasty retreat. Gold, which at one point had been knocked down $20 off its overnight highs, came back with a vengeance stuffing the shorts and forcing them back out as it closed the session in remarkable fashion for a Friday afternoon.

 

The strong close augurs well for next week although gold did suffer some pretty heavy technical damage this week as a result of the attack. It will take our friend some time to repair the damage suffered but it demonstrated true grit this week by coming back from such a fierce beating in so noble a fashion to end the week. One has to understand that as a result of the work of GATA and especially the conference in the Klondike that the big physical market buyers know full well what is going on in the gold market and were laying in wait for Goldman and company. And why should they not? If one understands the war involving gold and knows that there exists a group of entities who are intent on smashing the price of gold and will utilize all the resources at their disposal, why not wait for them to pull one of their stunts, step aside for a while, let them knock the price back down and then buy all that you can fit into your boats at a greatly reduced price level. After all, if you are determined to own gold and increase your holdings of it as the Russians, Chinese and Arab interests are, why not let the fools make it available to you at a nice big discount and then load the boat complements of your short-sighted but “generous” benefactors?

 

In conclusion, we will need to see the price action this next week and the COT next Friday along with the daily open interest reports to see if the gold cartel is forced to cover those brand new shorts, many of which are underwater at this point and whether the funds will now trade this gold market a bit more intelligently. We want to see if gold can hold the recent lows on any possible subsequent revisiting of those lows. If so, and if especially the volume dries up in comparison to that of the day when the lows were made, then the bottom is definitely in and gold will start its next leg up from this region after a period of base building. We know that down at those levels there are huge buyers waiting in the physical market who want to obtain gold at what they consider to be a “value” area. That is the key. Those guys want all the cheap gold they can get and will pounce on it at a price they are happy with. If the CB’s want to dump more gold on the market, those big buyers will be more than happy to relieve them of it all. Heaven help the new shorts in this market if that gang of physical market buyers decides this is as cheap as gold is going to get again.

 

June 16,2006

 

Dan Norcini

 

Dan is a professional off-the-floor commodity trader residing in Texas and can be reached at dnorcini@earthlink.net with comments.

 

mab - 18 Jun'06 - 12:13 - 17759 of 17761

 

 

ps

dont forget to email dan like i did giving thanks for his great article,

cos most of us on here really are pretty clueless when it comes to gold

and what really is happening at ground level.

 

im grateful to these few long term proffessional traders who take the time out and tell it like it really is.....sinclair, bill murphy, ted butler etc

 

dnorcini@earthlink.net

 

mab - 18 Jun'06 - 12:19 - 17760 of 17761

 

 

on fridays late gold/silver surges....

 

"Dazzling Gold And Silver Late Comeback"

 

I have been closely watching the gold and silver markets for nearly 8 years at The Café. Never have I seen gold and silver do what they did in the last 20 minutes.

 

Silver broke first, going down 20 cents on the day on extremely light volume. Gold followed (a fund sold 2,000 lots) and went to the unchanged mark, down a dime. Gold held and started back up. Somebody big was waiting for this orchestrated takedown and bought everything in sight in the gold pit. I mean everything. Gold went straight up and actually made new highs for the day on the close. Silver followed, closing right off its early highs.

 

Our silver source on the floor called and said Mocatta was the late buyer. This same source said he is VERY impressed, a comment rarely heard from this Comex veteran.

 

YES! This is a real plus as this incredible late action shows us The Gold Cartel has a new raging battle on their hands. Can’t stress this enough, as the gold/silver comeback was breathtaking … especially for a Friday afternoon in the summer. The Gold Cartel used to bury us on days like this in the past.

 

This bodes well for the weeks ahead.

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If you apply this up to the week-before-last, how good did it predict LAST WEEK?

 

It has been pretty good over the past few weeks but I still regard it as a bit of fun and don't read too much into it. Its always nice to see a chart like this weeks when some of the gold bears are growling. I pay much more attention to Bubbs comments as he appears to have a great deal of experience in the gold sector and has made some great calls over the past year.

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Just a thought, but is it an indication that there are more gold bulls on here who want to believe in the good news of gold going up, that this thread has over 74 more views than the gold-bear thread, even though the bear thread was started earlier?

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Just a thought, but is it an indication that there are more gold bulls on here who want to believe in the good news of gold going up, that this thread has over 74 more views than the gold-bear thread, even though the bear thread was started earlier?

I actually didnt see the gold bear thread until yesterday....

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As the battle for the US gold futures market between the Chicago Board of Trade’s (CBOT) and Comex becomes more intense, how do people here think it may impact the price of gold.

 

I believe it may have three possible effects.

 

1. Competition to reduce margin requirements. The margin requirement appears to be one of the tools used by the exchanges to control prices. Throughout the current Bull Run we have seen several instances where exchanges have announced an increase in the margin requirements for futures contracts and the heat has been taken out of the rally. Now that the CBOT presents a real threat to Comex is it possible that we may see them actually start to reduce margin requirements to compete for the business of gold futures traders.

 

2. The history of the gold market is one of manipulation and control by the FED and Central banks. Is it possible that they will now find it much harder to manipulate the price of gold through two exchanges rather than one; it would be like trying to ride two horses at once?

 

3. One of the attractions of CBOT is electronic trading rather than the dealing pit, we have seen the introduction of electronic trading result in increased volatility, could volatility increase as the CBOT takes a larger market share and will this not also make manipulation by the Fed and Central Banks more difficult.

 

US gold futures clash intensifies

 

US gold futures clash intensifies

 

FT.com By Kevin Morrison Published: June 19 2006 19:54 | Last updated: June 19 2006 19:54

 

The battle for the US gold futures market is becoming more intense, with the first signs the Chicago Board of Trade’s (CBOT) gold futures contracts are taking market share from the incumbent Comex.

 

Since CBOT launched its electronic gold futures contracts in October 2004, the US gold futures market has grown. However, the recent gold price slide has seen several investors quit the gold market. That in turn has led to a shrinking of the amount of gold futures contracts held by investors.

 

During the last two months, holdings in CBOT’s gold futures have risen, and there was been a corresponding fall in the holdings of Comex futures. This has led to the CBOT increasing its market share at the expense of Comex, which is owned by the New York Mercantile Exchange.

 

We are seeing more commercial players come into our contract, and that is diversifying our user base, and with new players coming into the contract we are now at last starting to take some market share,” said Bernard Dan, chief executive of CBOT: “It has taken us about 18 months to get here, but we feel we can grow our market share further from here.”..............

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As the battle for the US gold futures market between the Chicago Board of Trade’s (CBOT) and Comex becomes more intense, how do people here think it may impact the price of gold.

 

I believe it may have three possible effects.

 

1. Competition to reduce margin requirements. The margin requirement appears to be one of the tools used by the exchanges to control prices. Throughout the current Bull Run we have seen several instances where exchanges have announced an increase in the margin requirements for futures contracts and the heat has been taken out of the rally. Now that the CBOT presents a real threat to Comex is it possible that we may see them actually start to reduce margin requirements to compete for the business of gold futures traders.

 

2. The history of the gold market is one of manipulation and control by the FED and Central banks. Is it possible that they will now find it much harder to manipulate the price of gold through two exchanges rather than one; it would be like trying to ride two horses at once?

 

3. One of the attractions of CBOT is electronic trading rather than the dealing pit, we have seen the introduction of electronic trading result in increased volatility, could volatility increase as the CBOT takes a larger market share and will this not also make manipulation by the Fed and Central Banks more difficult.

 

US gold futures clash intensifies

 

 

Maybe, but no one should ever discount what the Central Banks can do, they have friends in high and low places. The recent market falls have hit commodities and the metals the hardest, which many may see as merely a correction, but there has been this concerted attack across the world not just by the Fed which has helped bring this around. Much of this manipulation might simply by talking a good fight, but recently it has been effective, even China is playing it's part. These attacks are almost like an artform, a work of beauty in their own right as you watch them pan out. In time however, it will take more than just talk.

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"I think there's a good chance that the bottom already IS in for both gold and silver,

based on 200dma support and hugely oversold RSI."

 

ACTUALLY,

It would not be surprising to me if:

+ Gold ralied form here for several days or even weeks, and

+ Then fell in August to retest the recnet lows are even slip below the lows.

 

If that happened, and RSI was higher on the retest, then THAT would be more bullish

than the present pattern

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I think a mini-rally (along with stocks) over the next few weeks, perhaps to around 640 to the 50dma, and then a retest of the lows. Would rather be long than short at this point (and indeed am!).

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"I think there's a good chance that the bottom already IS in for both gold and silver,

based on 200dma support and hugely oversold RSI."

 

ACTUALLY,

It would not be surprising to me if:

+ Gold ralied form here for several days or even weeks, and

+ Then fell in August to retest the recnet lows are even slip below the lows.

 

If that happened, and RSI was higher on the retest, then THAT would be more bullish

than the present pattern

 

DrBubb. I've heard you and others talk about the low being in August. I realise that gold is usually at its lowest mid summer, but it cant be that precise surely? If gold goes back up close to recent highs (or even half way) I'd be very surprised to see it fall back to $540 for August. Is there a reason other than seasonal for the timing of this expected drop?

Thanks.

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Sine270,

 

You are correct to assume that seasonality isn't set in stone, and it could be quite different this year. For example, the recent run from $570-$730 took place during what is traditionally a WEAK time for gold - all the seasonality went out of the window on that occassion. We are entering phase two of the bull market - the patterns we have become accustomed to might not hold as true in the future as more and more punters climb on board.

 

I take the seasonality issue under consideration, but don't assume that it is set in stone, and prefer to trade on technicals (underpinned by fundamentals, of course).

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Zeal061606A.gif

 

nice write-up with history of their comments on Zeal:

 

Both gold and silver were also stretched to their most extreme technical levels in a quarter century, a warning sign that the probabilities favored a sharp temporary reversal to relieve these extremes. The odds were way out of favor for being long by early May. And from a game-theory standpoint, euphoria ran rampant. Most traders were wildly bullish right near the latest interim tops, as the majority always is, so there were few short-term buyers left.

 

Thus trading probabilities based on historical gold and silver precedent and game-theory psychological considerations were screaming six weeks ago that a major precious metals correction was almost certainly imminent. To paraphrase a Bible verse out of Proverbs, the prudent saw the coming short-term metals danger and took refuge, but the simple kept right on buying and suffered for it. Markets take no prisoners.

 

Now you are probably wondering what good it does to meditate on this ex post facto. To become a more successful speculator and investor, it is crucial to learn lessons from market pain. If you didn’t see this coming and prepare your portfolio accordingly, this event is a great impetus to deepen your own studies of the markets so you aren’t caught off guard next time.

 

And if you are paying someone to help you navigate through this powerful commodities bull, and your advisor didn’t warn you beforehand in April and May about the ballooning odds and looming danger for a major interim correction in gold, silver, and the HUI, then you ought to fire him. There is no excuse, absolutely zero, for a professional to miss the ubiquitous warning signs before this recent selloff.

 

At Zeal we and our clients were long these latest awesome gold, silver, and HUI uplegs early and were blessed with fantastic realized profits even before the euphoria set in by April. Yet as we were stopped out or sold our PM trades, we remained in cash since the odds of a serious correction were getting so large. Since then we have been building up cash war chests to buy the feast to come of amazing PM bargains at the next major interim bottom.

 

 

link: http://www.zealllc.com/2006/pmcorrect.htm

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DrBubb. I've heard you and others talk about the low being in August. I realise that gold is usually at its lowest mid summer, but it cant be that precise surely? If gold goes back up close to recent highs (or even half way) I'd be very surprised to see it fall back to $540 for August. Is there a reason other than seasonal for the timing of this expected drop?

Thanks.

 

Good question.

 

Here are the reasons that I expect an August retest, or even a lower low in Gold and gold shares:

 

+ There is a strong seasonal tendency for August lows, especially in Gold stocks,

 

+ There was very heavy volume on the recent low, and markets like to retest areas of heavy volume,

 

+ A rally to $630 or even $650 would be nothing more than a normal correction of the sharp drop

 

+ We have broken an important upchannel, and after such break, i would expect a clear correction, and an a-b-c correction would be normal. so far, i see a complete a. we are in a b-wave, and are "owed" a c-wave

 

+ I think we will see a sharp drop in markets in August, and that may spread across the markets as Hedge Funds get caught with mass redemptions again. The hot money aspect of HF investors, and the redemption structurehas becomean important driver in a market environment where HFs have become such a big factor

 

HAVING SAID THIS, there are no guarantees.

ALSO, I am playing from the LONG side now, and betting that I will be clever enouugh to ride the market higher, and spot a sell window, before the slide into an August low starts. A dangerous game, that has worked for me in the past, but is impossible to play perfectly. So stay tuned.

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Looking at the chart it looks like we could easily see 600$ as soon as tommorow.

 

I know I know. Im supposed to be a gold bear.

 

I don't argue with the charts though.....

 

 

640$ then $540 ?

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Not in a day,

But such movements are possible.

 

I will be selling into the action above $600 and $620, if/when we see it

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The gold bulls thread is wiping the floor with the bears thread, with +400 more read hits, perhaps reflecting the view that in the very short term gold has been expected to bounce. Right now however, it seems to be treading water. This poses the question with the Fed meeting shortly, how will gold re-act to further rate increases? Perhaps the bear thread will soon be coming alive again?

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busy day- distracted elsewhere.

 

missed a good opportunity earlier today to take profits on my gold share callls-

for instance, ASA at $61 was a strong resistance. Fingers crossed that i will have another chance within as few days. i am hoping for another rally into the july 4th holiday for stocks and for gold shares

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