Gold Flag Flies At Half Mast
Jun 5, 2012
- In technical analysis, no price pattern implies a more violent move to the upside than a flag pattern.
- Please click here now. There’s a flag pattern in play on this gold chart, and it implies that a 2nd near-vertical jump could occur very quickly.
- Today, G7 politicians and central bankers are holding a key telephone conference call amongst themselves to battle the crisis in Europe. Public statements made after that phone call is completed could be the catalyst that activates this pattern.
- Gold stocks look even more powerful than gold. Please click here now. You are looking at a weekly chart of gold versus GDX (gold stocks). Against the dollar, gold looks powerful. Against gold stocks, gold looks terrible.
- There’s a rare island top formation on that chart, and almost every indicator and oscillator is on a sell signal.
- If gold is potentially ready to maul the dollar, what is the potential for gold stocks?
- Please click here now. That’s a daily chart of GDX, and you can see a head & shoulders pattern is present. The head itself is a small h&s pattern, which is very bullish.
- Against the dollar, GDX seems to be signaling it will rise to about $56. The right shoulder low could occur at around $45. Given the background of the flag pattern on gold and the G7 “emergency” conference call, it’s possible that there is no pullback at all.
- GDX also seems set to outperform the Dow. A week ago I suggested the Dow could crash against gold stocks, and a quasi-crash has occurred. Please click here now. The uptrend line is broken. Most of the indicators are signaling that the Dow could decline much further against gold stocks.
- I realize that the idea of gold stocks “outperforming everything” seems almost impossible at this point in time, but the most dramatic market moves tend to occur when most investors have given up on their dream.
- Friday’s jobs report was a disaster. Many institutional money managers called it a “game changer”. Oil prices have suffered a severe decline. The price of oil appears to be trading in almost perfect lockstep with the Dow.
- “Crude oil prices have plummeted 20 percent over the past three months, but the CEO of Europe's biggest oil company Royal Dutch Shell, Peter Voser, doesn’t think global demand is “collapsing.” He, however, expects further downside in oil prices in the second-half of the year as the market is well supplied.” –CNBC News, June 5, 2012.
- Both the Dow and oil charts now look a lot like the gold charts did when the Indian gold dealers went on strike; the lights are on but nobody’s home!
- Institutional investors have been shaken by Friday’s terrible jobs report, declining demand for oil, and now by Ben Bernanke’s silence. Money managers are becoming more vociferous in their calls for central bankers and governments to provide immediate stimulus programs of size.
- They aren’t going to be keen on applying risk capital into the general stock market until Ben Bernanke makes it clear that he stands ready to provide a new stimulus program. My professional opinion is, that if Ben and/or the G7 don’t say something concrete very soon, the stock market could crash. This is the type of environment where immense gold price spikes can occur.
- Considering the fact that silver is an industrial metal as well as a precious one, it has held up remarkably well against the background of a deteriorating economy and declining stock market.
- Please click here now. Silver doesn’t look as impressive as gold, but that is normal during the beginning of a precious metals intermediate price move to the upside. In the beginning, gold tends to outperform silver. As the move matures, silver takes the lead.
- Silver fans should be more-than-satisfied with the look of that price chart. There’s a flag-like pattern in play, and HSR (horizontal support and resistance) just below $29.
- A move above $29 could see silver start to really spike higher, particularly if the G7 makes powerful statements about printing money to provide stimulus to the economy.
- “Citing a weaker outlook abroad and only modest domestic growth, the Reserve Bank of Australia cut its cash rate by 25 basis points to 3.5 percent.” – CNBC News, June 5, 2012. All around the world, central bankers and politicians are pressing for more interest rate cuts.
- Rate cuts do promote growth, but the price of gold seems “unconvinced” that this growth can alleviate the debt crisis. Outside of the gold community, few citizens really seem to understand that you can’t grow your way out of a debt that can’t be eliminated with a 100% taxation rate.
- Most central bankers are mandated to promote a strong fiat currency. In the case of the US Federal Reserve, Ben Bernanke could be arrested if he started making statements about devaluing the dollar to end the debt crisis. He can speak hypothetically about devaluing the dollar to combat deflation, but he can’t openly say he’s planning to do so. Only the US Treasury is authorized to devalue the dollar. It can devalue the dollar itself, or mandate the Fed to do so.
- Until Ben Bernanke gets instructions from the Treasury to begin aggressive gold buy programs, print money, or revalue gold against the dollar, he’s limited to growth-focused programs like quantitative easing and lowering interest rates. Those programs are themselves bullish for gold, and I think most members of the gold community believe it’s only a matter of time before the US Treasury orders the Fed to devalue the dollar.
- The flag pattern on gold could indicate that some kind of massive stimulus is coming from the G7 today!
Jun 5, 2012
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