Gold Seasonals & Stochastics
Oct 30, 2012
- The United States presidential election is just a week away. Markets can become range-bound at such times, because institutions are reluctant to commit themselves until they know the outcome of the election.
- An extra dose of patience is required at such times, both by investors and technical analysts. Chart patterns can be distorted. In turn, that makes predicting market prices more difficult than usual.
- Please click here now. You are looking at the seasonal chart for the spot gold price. Please make note of the fact that gold tends to bottom around the 3rd week in October.
- At the end of the month (now), spot gold seasonally tests those lows, and then begins to rise.
- Please click here now. This is the seasonal chart for the gold futures price. It tends to make a significant low about now, and then makes a final low on approximately November 14.
- If you take an average reading of the two seasonal patterns, gold should be making an important bottom right about now.
- The technical action on the price charts of both gold and silver supports this thesis. Please click here now. This is the daily gold chart. Note the action of my key 14,7,7 Stochastics indicator.
- It seems to be suggesting that gold is poised to move higher on “seasonal schedule”.
- I consider a move over $1800 to be the most technically significant event in the history of the gold bull market.
- A move towards $1900 would turn $1800 into what I term a “platform of excellence”. I’ve highlighted the 3 times that gold has risen to $1800 and backed off.
- As things stand now, support at $1577 is what has halted price declines. I think most of the gold community would be a lot happier if declines were halted in the $1800 area!
- Recently, I’ve gotten quite a number of emails from investors who say they are now shorting a lot of gold (betting it falls). I carry short positions most of the time, but they never rival the size of my long position.
- It’s important to separate risk capital that is used for gambling, from risk capital that is used to build enduring wealth. Capital that is used for gambling should be strictly limited, regardless of how sure a thing your gamble appears to be.
- Before shorting gold in size, you may wish to consider a number of key issues. First and foremost: who is on the other side of your trade? Central banks are net buyers of gold on an annual basis, and the amount of gold they are buying is accelerating. In the 1990s they were net sellers of gold, so shorting some gold was a reasonably good gamble. That’s not the situation today.
- The risk of being caught short gold, as it rises above $1800, is definitely another risk to consider. Many enormous institutional money managers have expressed a firm desire to purchase gold in size, if it can trade over $1800.
- Their buying could create an enormous rally, and those shorting gold could be caught in a horrible situation; gold could gap higher for many days in a row, making their stop-losses useless.
- At this point in time, silver looks at least as good as gold, and probably better. While I don’t subscribe to the view that silver can outperform gold over the length of this crisis, it’s still a superb asset to hold, and I was a buyer of a “player’s position” last week.
- To view the action in silver, please click here now. Silver just broke the downtrend line, and the position of the Stochastics indicator is superb.
- The downside is likely to be strictly limited by the powerful support that sits between $30 and $31.25.
- Some analysts believe the “Frankenstorm” could cause oil to begin a serious decline right after the election. If so, it could create a very positive situation for gold stocks. Here’s why:
- Diwali in India is approaching quickly, and dealers are already buying gold aggressively. I think $1700 probably marks the low for gold, but it doesn’t really matter if it is $1700, $1680, or $1650.
- A high gold price coupled with a falling oil price, is just what gold stocks need; lower fuel prices to reduce the costs of mining, and higher gold prices for the product they sell!
- Please click here now. You are looking at the daily chart for GDXJ. It’s barely pulled back after rising almost 50% from the May lows! Note the green return line (lower up trend line). I would expect any further weakness to be halted in the $22 area. Most investors in the gold community own a lot of junior resource stocks. The good news is that I’m not expecting any more weakness. I think GDXJ is poised to take a run at the $30 price zone.
- Please click here now. GDX is the exchange-traded version of the HUI index, and all my technical lights are green! There’s a great bullish wedge pattern in play. I believe a move over $1800 by gold will be accompanied by a GDX move to over $58!
Oct 30, 2012
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