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Gold Analysis and Strategy 31st of October 2010

1. Gold Spot Price Analysis

1.1 Gold in USD (one ounce = US$1,358.10)

Gold in USD
Gold in USD

 

  • On 14th of october Gold reached a new all time high at US$1,387.00. Since then we witnessed a small correction back to the uptrend line from end of july. Last thursday and friday Gold surged higher again putting in a low at US$1,315.95.

  • Now we have massive support at around US$1,315.00 - 1,320.00. Here we can find the quickly rising 50-dMA (US$1,297.29), the lower Bollinger Band (US$1,312.02) as well as the double bottom at US$1,315.95US$ and US$1,319.95. A setback under US$1315.00 is therefore quite unlikely.

  • To the contrary, the probability for a continuation of the Gold rally is now very high. The highs at US$1,365.00 and US$1,387.00 could lead to some short term consolidations but Gold should not close under US$1,340.00 anymore.

  • The medium term picture is unchanged and still very bullish. My next 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.

  • Looking forward to the new year there should be a period of consolidation and correction coming. Gold has been rising for 10 years now. After the ongoing parabolic excess to price levels around US$1,600.00 - US$2,000.00 in the coming months we should witness a prolonged phase of correction starting latest in spring 2011.

  • The Dow Jones/Gold Ratio is now at 8.19 points and is moving in a very tight range since months.

  • 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 = 976€)

Gold in Euro
Gold in Euro

 

  • Once again Gold in Euro moved down below the 50-dMA (971€) and tested the lower Bollinger Band (950€) as well. Therefore €-Gold continues to move between the 38,2% and 61,8% Fibonacci Retracement respectively 985€ and 947€.

  • Even though I do not expect an immediate price explosion in €-Gold the time window for physical buys under 1.000€ will close soon. The typical test of the 200-dMA (912€) is still missing but I don't see any bigger setback coming again. To wait for this could be fatal. The next big €-crisis is just a question of time. At the moment the US-Dollar is beaten down and could fall to as low as 1,50€ or even 1,60€. But latest by spring 2011 markets will focus once again on the big and unsolved problems in Greece, Ireland or Portugal.

  • Therefore my clear and simple advise: As an €-Investor you can buy gold & silver bullion at current price levels. A bull market forgives many mistakes if you are patient. Therefore it does not matter if you buy at 900€, 950€ or 975€ as long as you buy under 1.000€!!


1.3 Goldbugs Index USD (522.23 points)

HUI Goldbugs Index
HUI Goldbugs Index

 

  • The Gold mining Index HUI tested successfully the 50-dMA (500,61) as well as the lower Bollinger Band (491,44) in recent days. Parallel to higher gold prices the mining shares booked nice gains last Thursday and Friday.

  • Has now finally the time come for a sustainable and big move above 500points ? Yes I think so. It looks very good. Supported by the end of the year rally in the stock market in the next 4-8 weeks Gold and Silver mining stocks should explode higher.


1.4 Gold COT Data

Gold COT data

 

  • The amount of short sold contracts by the commercials is still very high. The number came down a little bit during the recent correction to a level last seen end of august while gold was about US$100 lower. This clearly shows hesitancy on the part of commercials traders to short this strong bull market.

    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)
    06/29/2010 = -289,956 (PoG Low of the day = US$1,231)
    07/13/2010 = -248,348 (PoG Low of the day = US$1,197)
    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 )
    09/21/2010 = -292,308 (PoG Low of the day = US$1,272 / High of the day = US$1,389 )
    09/28/2010 = -302,740 (PoG Low of the day = US$1,284 / High of the day = US$1,310 )
    10/05/2010 = -299,498 (PoG Low of the day = US$1.313 / High of the day = US$1.341 )
    10/12/2010 = -300.022 (PoG Low of the day = US$1.340 / High of the day = US$1.353 )
    10/19/2010 = -293.082 (PoG Low of the day = US$1.370 / High of the day = US$1.329 )
    10/26/2010 = -282.435 (PoG Low of the day = US$1.329 / High of the day = US$1.342)

 

Gold COT


1.5 Gold Seasonality

  • The critical second part of october is now behind us. November and December have always been very positive months for precious metals. Gold is still in it's strongest seasonal phase of the year.


1.6 Gold Sentiment

The amount of outstanding puts in the gold market did not change a lot recently and is still far away from extremes as of last December 2010.

Gold Sentiment

The Market Vane report from 27th of October shows that bullishness among analysts has dropped from 85% mid October to the present reading at 70%. From a contrarian point of view that is a bullish signal.

All in all the sentiment has been cooled down a bit due to the correction and Gold can climb up again on a wall of worry.


1.7 Conclusion

  • Short and midterm Gold should be on the way to my next price target around US$1,600.

  • Gold is now in a strong parabolic spike that could lead prices higher than many people can imagine. Already until december we could see a move up to US$1,550.00. Latest around these levels another correction should be seen.

  • Looking forward to the next two weeks Gold might first pull back down a bit at US$1,365.00 and US$1,385.00 followed by an attack towards US$1,400.00-1,420.00.

  • The FED Meeting on wednesday will bring clarity about quantitative easing 2.0. So far the FED has managed to stimulate the markets only with ambiguous announcements and rumors. But she will hardly plan to disappoint the markets since this could lead to a nasty sell off. Should the FED therefore continue to "print money like crazy" Gold could even reach US$2,000.00 by Spring 2011.

  • However one thing is absolutely sure: Volatility will increase.

Real Interest Rates


2. Recommendations

 


On 22nd of November my new record will be released on iTunes. http://www.wormland-music.com/promo/knowthyself/index.htm

 

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