1. Gold Spot price Analysis
1.1 Gold in USD (one ounce = US$1,368.70)
During the last two weeks Gold showed enormous volatility. Ahead of the FED interest rate decision prices came down to US$1,325.00 once again only to explode from here within 5 days to reach a short term top at US$1,425.00. Now the gold price is down over US$65 from this top so far.
This increased volatility is an axiomatically part of a major bull market, and it normally is accompanied by the biggest move on the upside. This is the characteristic of a gold market getting ready to go ballistic. We will see daily moves of US$100-US$150.
Last Friday Gold was already down heavily in the Asian trading session. After a small recovery the support level around US$1,385,00 could not hold the selling pressure in the US Market and gold went down quickly to a low at US$1,360.70 and finally closed out a super volatile week at US$1,368.70.
Short term gold is now oversold and at least a bounce back to US$1,380-1,385 or even US$1,395-1,400 should follow soon after some more downside action. First strong support is clearly between US$1,350.00 and US$1,345.00. If Gold can not hold above US$1,350.00 a daily basis the next support range around US$1,315-1,325 will be tested.
All important support lines like the 50-dMA (US$1,326.30), the lower Bollinger Band (US$1,305.74) and the 200-dMA (US$1.212,82) are far away from current price levels. In the past all bull moves during autumn/winter gold never went down below the 50-dMA . If it did the rally was already over.
The medium and long 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$1,600.00. This is possible until end of this year or spring 2011.
After a final parabolic excess up to US$ 1,600.00 or even US$2,000.00 I expect a longer period of correction and consolidation to follow in spring 2011.
The Dow Jones/Gold Ratio currently is at 8,18 points and continues to move in a very tight range since months. It looks like we could see an outperforming stock market for the next couple of days before gold continues to move higher again.
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.
In this context you need to be aware of the huge difference between nominal and real value of an asset. In nominal terms (=US Dollars) the Dow Jones Index made new highs 3 years ago and recovered most of the losses since the latest crash in 2008. In real terms (which of course is gold) the Dow is clearly in a bear market since 2000 and never made any new high. You can increase asset prices in nominal terms via inflating the currency e.g. quantitative easing, low interest rates etc. but you can not create real growth and value with it.
Although it may be hard to understand but we are clearly on the way to a so called "Crack Up Boom".
Definition "Crack-up boom":
The final short-lived boom that occurs in the last stages of a seemingly endless inflation. The crack-up boom results from a "flight into goods or real values" (q.v.) and marks the end of an inflation by a complete breakdown of the monetary system.
Definition "Crack-up boom" by Ludwig von Mises:
The wavelike movement affecting the economic system, the recurrence of periods of boom which are followed by periods of depression, is the unavoidable outcome of the attempts, repeated again and again, to lower the gross market rate of interest by means of credit expansion. There is no means of avoiding the final collapse of a boom brought about by credit expansion.
The alternative is only whether the crisis should come sooner as the result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved.
Mises: Human Action S.572
1.2 Gold in EUR (one ounce = 1.000€)
In my last report I emphasized that you won't be able to buy Gold under 1.000€ for much longer.
After a final test of support at 945€ Gold in Euros directly exploded higher. Driven by the problems in ireland and quantitative easing 2.0 prices under 1.000€ should very soon belong to the past.
After breaking out of a 3-month sideways trading range (985€ - 947€) Gold now has solid support below 990€. The 50-dMA (975€) and the middle Bollinger Band (980€) are waiting in this area as well. A last short dip under 1.000€ in the next couple of days should be used to buy or increase physical precious metal holdings. There will be no bigger correction in €-Gold any time soon.
1.3 Goldbugs Index USD (551.84 points)
The gold mining index HUI finally managed to sustain a break out above 500 points. From the last low at 490.37 points the big mining shares gained 98 points or 20% in just 10 trading days which of course induced a correction driven by profit taking.
A test of the old high around 536 points would be no surprise. If this is no support the 50-dMA (514,79) should finally stop the correction and a new rally could start.
1.4 Gold COT Situation
- Looking at the latest COT numbers it continues to be obvious that the commercials are not able to increase their short position into rising prices anymore.
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)
08/10/2010 = -230,980 (PoG Low of the day = US$1,192)
08/24/2010 = -264,300 (PoG Low of the day = US$1,210)
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 )
11/02/2010 = -276.612 (PoG Low of the day = US$1,350 / High of the day = US$1,359 )
11/09/2010 = -290.953 (PoG Low of the day = US$1,425, High of the day = US$1,385)
1.5 Gold Seasonality
• Gold continues to be in its strongest seasonal phase of the year.
1.6 Gold Sentiment
• The amount of outstanding puts only slightly increased and is still away from the extremes around 73-75 points.
The correct estimation of the sentiment is getting more and more challenging. Gold is no longer a contrarian investment but most of the population is not yet invested while the trend is getting stronger. For now Gold will continue to climb the wall of worry. This wall is constantly rebuild by these nasty setbacks as we've seen last week. I hear too many people now talking about Gold going back to US$1,265.00.
Short and midterm Gold should be on the way to my next price target around US$1,600.00.
Gold is in a strong parabolic spike that could lead prices higher than many people can imagine. Until mid of december we could see a move up to around US$1,550.00. Around these levels another correction should be seen.
Short term the sharp and explosive move after the FED meeting was a bit too much. The correction since last tuesday should bring gold down to first strong support at US$1,350.00. From here or latest from US$1,315.00- US$1,325.00 we should see a new attack towards the US$1,400.00 level. I do not expect new highs within the next two weeks but a volatile back and forth between US$1,400.00 and US$1,315.00.
Should Gold do not hold at $1,315.00- US$1,325.00 the rally definitely would be over. I think this is very unlikely. Yes we do have some divergence setting up especially on the daily MACD in Gold but the seasonal pattern is very strong. I believe the biggest moves in gold are yet to come. I think we will see an accelerated move out of paper assets in the coming months and I even can imagine a spike up to US$2,000.00 until spring 2011.
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