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Gold Analysis and Strategy 18th of September 2010

1. Gold Spot price Analysis

1.1 Gold in USD (one ounce = US$1,274.40)

Gold - Continuous Contract 3-Year Chart

Gold - Continuous Contract 6-Month Chart

  • Last tuesday Gold finally broke out above the strong resistance area at US$1,260.00. It advanced strongly to new all time highs at US$1,282.50. But friday's price action leaves some question marks on the chart as gold corrected down to US$ 1,272.00.
  • This setback on the daily chart could develop into a candlestick pattern called "Evening Doji Star" which is a clear warning signal. Gold is now very close to the upper Bollinger Band (US$1,276.26) and the weekly chart still shows a potential bearish wedge formation. These are the warning signals on the charts but so far the only ones.
  • Of course the 50-dMA (1.217,98US$) is quite far away and the RSI indicator is getting overbought. But this is typical for a strong and healthy bull market.
  • The former resistance zone between US$1,250.00 and US$1,265.00 is now becoming first support and will surely be tested within the coming weeks or months. I suppose we will first see a continuation of the uptrend reaching my 1st price target around US$1,332.85 - 1,339.00US$ soon. From here a fast and nasty selloff back to the breakout level would be very typical.
  • The medium- and long term picture is unchanged and still very bullish. My next long term price target is the Fibonacci - Extension (261,8% of the last big correction) at around US$1,600.00. This might be possible until end of this year or spring 2011.
  • The DowJones/Gold Ratio is still moving in a tight range and is currently at 8.32 points. A move down below 8 points confirms the new upleg in Gold and underlines the long term shift away from paper assets towards hard assets like precious metals and commodities.
  • Long term I expect the price of gold moving towards parity to the Dow Jones (=1:1). The next primary cyclical change is still years away. This means we are still in a long term bull market in gold (and also commodities) and in a secular bear market in stocks.


1.2 Gold in EUR (one ounce = 978€)

Gold/XEU 3-Year Chart

Gold/XEU 6-Month Chart

  • Gold in Euros is still moving between the 38,2% and 61,8% Fibonacci Retracement (985€ and 947€). The stronger Euro (or weaker dollar) negated the price advance in US$-Gold.
  • As I have mentioned already a couple of times I do not expect €-Gold to clearly take out the all time high at 1046€ until end of this year. My supposition is that Gold in US$ will move up strongly but at the same time the US-Dollar will be very weak until end of this year. Therefore gains in €-Gold should be limited. A weak dollar would be supportive for the the stock markets as well.
  • Every setback down under the 50-dMA (946€) remains a clear physical buy.


1.3 Goldbugs Index USD (495.12 points)

Gold Bugs Index 3-Year Chart

Gold Bugs Index 6-Month Chart

  • The HUI Goldmining Index is still fighting with the critical resistance zone at around 500-525points. If the breakout succeeds we should witness an explosive rally that could take the index up to around 750 points which equals a 50% increase.
  • To maintain this positive scenario the index should not fall under 475 points anymore.
  • The Junior Goldminers are leading the market now and already broke out three weeks ago.

Market Vectors Junior Gold Miners


1.4 Gold COT Data

Gold COT data

  • Although Gold advanced strongly last tuesday the commercial short position increased only slightly. Without a question we are at critical levels here, but I guess there is still more room to go up. But it definitely remains a warning signal.

04/18/2009 = -153,419 (PoG Low of the day = US$885)
12/01/2009 = -308,231 (PoG Low of the day = US$1,190)
05/11/2010 = -282,644 (PoG Low of the day = US$1,201)
06/15/2010 = -278,944 (PoG Low of the day = US$1,220)
06/22/2010 = -288,916 (PoG Low of the day = US$1,232)
06/29/2010 = -289,956 (PoG Low of the day = US$1,231)
07/06/2010 = -249,142 (PoG Low of the day = US$1,191)
07/13/2010 = -248,348 (PoG Low of the day = US$1,197)
07/20/2010 = -215,664 (PoG Low of the day = US$1,175)
07/27/2010 = -227.555 (PoG Low of the day = US$1,156)
08/03/2010 = -222.029 (PoG Low of the day = US$1,180)
08/10/2010 = -230.980 (PoG Low of the day = US$1,192)
08/17/2010 = -249.570 (PoG Low of the day = US$1,223)
08/24/2010 = -264.300 (PoG Low of the day = US$1,210)
08/31/2010 = -284.561 (PoG Low of the day = US$1,232 / High of the day = US$1,250)
09/07/2010 = -287.680 (PoG Low of the day = US$1,245 / High of the day = US$1,257)
09/14/2010 = -292.939 (PoG Low of the day = US$1,249 / High of the day US$1,274)

Gold Futures - Commitment of Traders


1.5Gold Seasonality

  • Again september proved to be one of the best month in the year for precious metals. And still this seasonality pattern supports a continuation of the current rally in gold and silver.


1.6 Gold Sentiment

There have been only small changes in the Put/Call Ratio within the last two weeks.
The market participants are clearly positioned for higher prices to come.

Date Total Calls Total Puts PC Ratio
09-10-2010 580496 342444 0.590
09-03-2010 561074 321909 0.574
08-27-2010 512636 306670 0.598
08-20-2010 506650 341343 0.674
08-13-2010 479883 327881 0.683
08-06-2010 464943 310577 0.668
07-30-2010 444253 285816 0.643
07-23-2010 539221 392250 0.727
07-16-2010 512312 369411 0.721
07-09-2010 499068 352830 0.707

Put/Call Ratio


1.1 Conclusion

  • Mid- and long term term Gold should be on the way to my next price target around US$1,600..
  • Looking forward to the next couple of months I am very sure to see a strong advance in gold and precious metals. My first price target is at US$1,339.00, then US$1,441.00, US$1,521.00 and finally maybe even US$1,600.00 until spring 2011.
  • Short term Gold should continue to climb higher besides some warning signals. I think US$1,335.00 - US$ 1,339.00 are possible within the next two or three weeks.
  • But from there I expect a sharp correction back down to the new support level between US$1,250.00 and 1,265.00US$. Everybody who is not yet invested should be patient and wait for this correction. Buying in at current levels is definitely way too risky.
  • Should Gold instead move clearly down below US$1,265.00-1,260.00US$ already within the next days we have to be very alert since it could signal a false breakout and a confirmation of the rising bearish wedge on the weekly chart.

 

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