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GOLD, Bottom or Bounce

Its always interesting to go back a month prior to a major market event, to see what analysts or news letter writers predicted about what direction a specific market would go. Late November and December was particularly interesting due to the incredible bearish sentiment that was created, as it seemed all hope for gold was lost, with one writer even declaring a secular bear market in gold was beginning and likewise a multi-year secular bull market in stocks. Even I questioned my sanity for a couple of days. Emotions created by rational ignorance that is a consequence of believing in fundamental news related items, are a difficult thing to overcome. That is the reason we have technical analysis, yet even there, with the variety of styles and interpretations we also end up with a dichotomy of opinions that often results in an abundance of criticism of the "art".

Then there are the conspiracy theories as to why each market is being manipulated and that technical analysis doesn't work anymore. Well I have to admit, these markets have been volatile and are moving in unusual ways, but whatever the reason is doesn't really matter, because from my "technical" perspective, the markets are moving in exactly the way they need to in order to set themselves up for the next major move. Of course those spouting that the Chinese are buying all the gold....or is it that they are forcing gold down so they can buy more....no, I think maybe it's the US is selling to...no, wait, the US doesn't have any gold, so how can they sell it....okay, now I'm confused. Well anyways, they will pound their stories on the table and in the press until the day they can say, see we told you so. Maybe they will be right, but in the meantime, how do you make money instead of waiting "for that day" ad infinitum?

One way is to limit the amount of information you receive into your mind from the mainstream media and stop listening to table pounders, because both of the above have their own agendas. You need to avoid decisions based on analysis that is backed by a fundamental story because that is what will affect your emotions. It is much better to be agnostic about the markets and utilize some technical analysis that will find the best performing asset, whether long or short. For example, in returning to that statement about gold beginning a secular bear market - look at the relative gold chart below and tell me if that looks like a secular bear market to you. Technical analysis doesn't get anymore perfect than that. In fact, it is the one chart that told you to buy gold on Dec 31-2013. The price needed to correct from 2011 back to the uptrend line, which is also a 50% Fibonacci retracement level, combined with a positive divergence on the 26 week Rate of Change indicator in the lower panel. Why did it go down to that level, was it due to manipulation - who cares, you don't need to know why....you need to know "where and when".

Gold Monthly Chart
Larger Image

Chart courtesy of StockCharts.com

The chart remains unidentified for a reason; to entice you the reader to do a little homework; the first investor (not newsletter writer or analyst) to identify what the underlying symbols for this chart are, will receive a free 6 month subscription to investorkey.com . Email me at the address below with your answer. (one answer per respondent)

On January 9, 2014, I issued an URGENT Alert:Precious Metals in my Blog, the first I have issued since I began writing. Here is an excerpt of what I wrote that day:

"There is a saying that they don't ring bells when you're at a bottom, but I just can't help think that is what they are doing today. The volume on this decline the last few days is drying up nicely on many metal stocks and etf's. Today we have partially filled gaps on the precious metal etf's and stocks and that leads me to believe that we may complete filling them tomorrow, perhaps at the opening bell, and perhaps even have a reversal outside-day in the price action."

That Alert allowed my readers to buy a number of precious metal etf's at the opening on January 10 that we are still long. If nobody rang the bell for you that day, then you better start working on the chart above, or get a trial subscription to our blog. As a side note, we also issued a January 22 URGENT Alert: Stock Market, in which we recommended three sector ETF's to short. We try our best to get in early on a move rather than missing a large portion of move.

We believe this should be the end of the cyclical bear market in precious metals rather than just a bounce, however we are cautious, because there still are a number of other assets that are out of sync with the precious metals, such as the Canadian and Australian dollar and some commodities. Hence, we are viewing this as a trading opportunity, with the following caveat; the last 10 days of February is our target area for taking profits. Meanwhile we will raise our stops as necessary.


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