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"Gold & Her Friends. Technicals Update."

Stewart Thomson
May 18, 2010

1. Where are we now, in the big picture? First off, short term the Gold price hit $1250 last week. That came amid “into the ceiling” short term (daily chart) technical oscillator readings. I spoke of cash register ringing “mayhem” as we booked profit into tremendous strength.

2. This morning as I write, gold has taken out Friday’s $1217.50 lows, and is banging on $1210. Obviously it’s back to the buy. Buying is the never the fun that ringing the cash register is. But, to state the obvious, one can’t happen without the other. For today: You can’t ignore a $40 sale on the price of gold. While the technical indicators went “nosebleed”, particularly RSI, Stochastics, and MACD, the fact is those nosebleed levels were not accompanied by the emotion of greed.

3. I would call the emotion at $1250 more like “satisfaction”. Investors were generally satisfied with the progress of gold, and their accounts. That augers more for a consolidative correction than a meltdown, and we could also got straight back to technical “nosebleed overbought” and shoot higher. Be prepared for all action, however, as anything is possible. If price does go higher, $1210 will look to you then, like $1156 does now. “If only I’d bought 1210” is not the thought you want to be having at gold $1400.

4. While I would not be a large buyer at 1210, buying zero is unacceptable.

5. It’s very important to clearly delineate the amount of gold items that are core positions from those that are swing (intermediate term) and short term trading positions. If you do not have a long term winning track record in the market, you may want to seriously consider keeping core positions in a separate account, and obviously the innermost core must be physical gold.

6. Just as the banksters made mark to market accounting into mark to model, amateur investors have an “interesting” way of assigning “trading position” labels to what were formerly core positions. If gold fell hard, at minimum your core positions should remain unchanged. They should be rising.

7. Elmer Fudd Public Investor throws assets in the garbage on price weakness. My suggestion to Elmer Fudd: If you have to use a stoploss in your investing, use it on paper money. Not GOLD.

8. Just as leveraged trading must involve stoplosses, the higher the risk of the underlying asset, the stronger the case for stoplosses. Not so for physical commodities, despite the wiener patrol’s attempt to pretend that short term price gyration risk means the risk is high of you losing all your money in the item, even though you bought it with no leverage. Of course, that’s why they ARE the wiener patrol.

9. In the very long run, all paper monies flaunted as low risk actually has a 100% track record of going to zero. At the top of Elmer Fudd’s “high risk investment list” is: Gold.

10. Take a look at Nouriel Rouwieny’s face. Does that face look like the face of a happy man? He hates gold. Gold haters generally tend to look and act as though a part of their soul is ripped out. Maybe it is…

11. All investment portfolios should start with a foundation, obviously. The banksters’ millions of “wealth advisors” they deploy around the world all operate on the brilliant “asset gathering” principle devised by the banksters; collect the “safe money” first. Unfortunately, unknown to the wealth advisors, they are really wealth transfer agents, whose main function is to transfer wealth, from Elmer Fudd to the banksters. How many wealth advisors start with GOLD as the foundation of an investment portfolio? Answer: Almost none.

12. Yet safety is trumpeted as the foundation of the portfolio. It’s a bankster game to build a level of trust. Once the trust is there, the client and wealth transfer puppets put on a perfect show for the laughing banksters. Soon Elmer price-chasing Fudd can be seen in the restaurant or on the golf course with his buddies, exclaiming, “I’ve got 50% of my portfolio in Fannie, Freddie, and Enron. I read something about gold, but I don’t want anything high risk in my portfolio, I want to be solid.”

13. When it all melts away, the banksters dance the carcass of the price chasers’ portfolios, into cash and bonds with their “you need real safety, and you need it now!” show. Because Elmer Fudd has no tactics, he simply looks at the US dollar chart for the past few months and tells himself how smart he is to have made the move into cash. Now that the Dow has risen 70% he’s put “a little capital to work, back in the market, as this recovery has legs!”. Yes it does have legs, and that’s why the Dow already rose 70%. Sorry to inform Elmer Fudd, but if the Dow rises another 70% again (or 700%), it’s more likely because the US dollar has taken main stage in the currency crisis show, now that the Euro has finished its role as warm-up act. Elmer’s business and job is more like to be on fire as the Dow rockets higher. My prediction: Elmer Fudd will be OUT of the Dow, while it soars to 20,000, 30,000, and maybe 100,000 or higher. It will be that annoying “should I play the market or should I feed my family” decision thing… I expect the Dow to rise tens of thousands of points higher, but it will be fuelled by an institutional panic out of paper money and into the stk mkt as a safe haven. My focus is China, because it is likely to benefit as the USD burns, but is less likely to end in “the crash of all crashes”, which is how all hyperinflated markets end.

14. Bottom Line: When your long term stock market choice is between buying the greatest industrial revolution in the history of the planet on price weakness, and buying the end of a 200 year empire (or pretending you can time the exact end date), the decision is common sense, not rocket science. If you like collecting peanuts, naked short the Dow. It will work for a while and then you’ll lose all you made as the dollar tanks and the Dow soars. If there’s a gold revaluation, you could be wiped out shorting the Dow in 24 hrs. If you want to build a massive asset, buy the Chinese stock market in a pyramid formation, all the way to zero. The coming Chinese economic empire is going to dwarf all that was ever produced in America many times over, but it’s not something for Elmer Fudd to invest in, and then after 6 months start screaming, “all I know is I invested (price plopped) $100,000 and now it’s only $80,000, my advisors and those riceballs ripped me off, I want out!” There’s a reason why his name is Elmer Fudd. Stay away from him.

15. I’m not a big believer in the “gold will fall if the euro rallies” theory, at least not in magnitude or duration, but the technicals simply argue that while gold is a buy here, it is a small buy. $40 of price weakness….is what it is. It’s not a $400 super-sale, so don’t get carried away on the buy side. Here’s a look at the daily gold chart. This doesn’t include this morning’s action, which will have torqued some of the oscillators into more sell signals.
Gold Daily Chart. Note the Oscillator crossover sell signals

16. Here’s another look at the daily chart, just with the HSR (horizontal support & resistance) lines. Note that we’ve notched the 1215 band, and 1190 and 1170 are next. Those are buy markers. Not “but what if that line breaks, how far could gold fall, maybe I should liquidate now!” markers.
Gold Daily Chart HSR Bands Delineated

17. Note that while the 1160 and 1145 HSR bands would likely put the technical oscillators in oversold territory, so could time. Time at current price. We can’t know, but we can respond.

18. I’ve mentioned the “long natural gas short oil” trade, and it’s turned into a big winner for those that took it. I would not naked short oil against long natgas, but an ETF-type instrument can chop your risk from unlimited to the amount of capital you invest. Natural Gas is soaring again this morning, starting to trigger some cash register action, and some thoughts that “hey, this isn’t Ambac after all, I own a real ASSET!” Yes, you do.

19. Separately from the long gas-short oil trade, oil should be bought now by long side oil players, after the 20% in 2 weeks (!) decline, but it could go a lot lower, so this is not a bottom call, just a strategic entry point for some of your oil capital.

20. Here’s a look at the oil charts. While the daily chart is technically very oversold, (unlike GOLD, where the weekly chart looks phenomenal) the oil weekly chart is starting to show the oscillators taking on some “cascading” action, which can be quite negative. The shorter term picture, defined by the daily chart, is very oversold, but I would not be assuming that you have called the turn as you buy here. Making money in oil, or any market, is a totally separate matter from calling the turn, a simple concept, but very difficult to act on consistently because of emotions. My pyramid generator removes your turn calling theories from the equation.
Oil Weekly "Cascade Theme" Chart
Oil Daily "WTIC is 20% on sale!" Theme Chart

21. The Natural Gas daily and weekly charts both look excellent, and are looking more so every day. Buy signals on the oscillators are showing up and we have a technical upside breakout. Keep in mind that I don’t buy breakouts. I book profit into any and all “price pops”, just as I buy technical “breakdowns”. The key is capital allocation in a pyramid formation. Here’s a look at the…
Natural Gas Daily Chart.

22. Silver is the current item with the highest probability of “tearing up the price track”. The wiener team has been moaning they are missing out as price nearly touched $20 last week, but now have taken their place in the audience stands, performing great analysis, yes, but with zero action on the buy side. Don’t trade short term victory for long term financial death with your tactics.

23. On that note, the reality is that silver has fallen over a full dollar from the 19.87 area highs. You can’t sit there buying nothing, while believing that if 21.46 is taken out, you have a “breakout” you’ll buy and make “big money forever”. The banksters will ensure that does not happen. Gold 887.50 is long gone, long achieved. Silver $52.50 will fall the same way. With most investors watching and analyzing, holding zero.

24. To get yourself IN the game without going crazy or over-analyzing the thing to death, consider using a single reliable technical indicator to gauge whether a market is overbought or oversold, to take action on those two fronts. So, which indicator?


May 18, 2010
Stewart Thomson
Graceland Updates
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