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Gold Market Update

Gold just needs a trigger to launch it for the most spectacular rally since the late 70's. I believe that trigger is likely to be the crash (or decline) of the stock markets.

This crash, if it occurs, is in anticipation of the inevitable bursting of the debt bubble. This is much like during the Great Depression when the stock markets crashed and bottomed before Total Debt as a % of GDP peaked in 1933. The Sovereign Debt-Crisis (especially in Europe) is the obvious sign that the debt bubble is bursting; with every additional unit of debt producing less or no increased GDP.

We do not have to only look that far, for an example of what is likely to come. Below, is a graphic that compares gold and the Dow, from June 2008 to May 2009.

Gold - Daily Candlestick Chart

The reason that I took these dates is because the period is similar (based on fractal analysis) to the current period. Gold bottomed in October 2008, more than four months before the Dow made a bottom. From the time of gold's bottom, gold and Dow moved together at first, where after gold continued its rally, while the Dow was falling. It was also during this period that the gold stocks started a rally. However, this time, conditions are even better for gold stocks (more in the Gold Stocks Update).


Gold Long-Term

Currently, it is macro factors that are driving gold; therefore, once it starts moving up, it will often not make sense when compared to what other assets like stocks are doing. This is what greed and fear do: they make people to act irrationally. Fear and greed will push gold and silver higher at a phenomenal rate, despite major economic decline.

We, therefore, have to keep a close eye on the long-term charts, since the evidence for a massive rise should be there. I have done extensive analysis on gold and silver's long term charts.


Update on bullish gold fractals:

Below, is an extract of my premium gold update (25 January 2012):

The fractals identified in the previous alert appear to be playing out as predicted. Below, is an updated version of the chart from that alert:

XAU/USD Spot Price Chart

The two patterns are indicated by points 1 to 10, to show how they are similar. Point 10 appears to be in now. The next important barrier is the downtrend line. Note that a short-term reaction, before piercing the line is possible.

Furthermore, should price pierce the line and rally, I would expect some kind of retest of the breakout area. Please note that these are just short-term movements, and it is anybody's guess what will really happen. We have to focus on the big move, which is a significantly higher price over the coming months.


Gold/Silver Ratio

Below is a chart of the gold/silver ratio:

$GOLD:$SILVER (Gold - Spot Price (EOD)/Silver - Spot Price (EOD)) CME/CME

I have drawn a support line that was violated recently. This is a good signal for silver and gold price. We could see a quick move to 45, however, we are likely to see a retest of that 54 area, before that.

This could also mean that we could have a risk-aversion episode when we retest the breakdown level, with gold and the Dollar rallying. A retest will be a good opportunity to load up on silver, since price is likely to pullback.

At some point - after retesting the breakdown area (if it does) - this ratio is likely to fall very fast. That might be the point when silver and gold really start to take-off.

 


For more of this kind of analysis, see my Gold Long-term Fractal Analysis Report and Long-term Silver Fractal Analysis Report, or subscribe to my premium service.

 

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