Gold Triangle Reality Check
Dec 13, 2011
- "On the technicals, we are heading for a triangular formation. If we move lower, we'll break to the downside and that is a bad signal." - Dominic Schnider, head of commodity research at UBS Wealth Management in Singapore, early morning, Dec 12, 2011.
- When you see commodity market heavyweights all talking about the same theme in a major market, you know that huge money is on the line, and it’s time to take a closer look at that theme.
- The key when looking at such a theme, is to do so from “outside the box”. Understand what the herd is focused on, but don’t get dragged into acting as they do.
- Before I get into an analysis of the symmetrical triangle that boatloads of commodity money is betting on, I want you to take a look at the Dow. Retail sales numbers coming out today are rumoured to be strong, but the rally in the Dow is a little long in the tooth.
- Click this short term Dow broadening top chart now. So far, the Dow is holding strong, and attempting to consolidate an advance of about 1100 Dow points. If you hold gold stocks, you don’t want to cheer for a crashing Dow.
- Cheer for a higher Dow. Click this longer term Dow chart. You can see the price flowing like a river between the green Keltner line “river bank” boundary lines. To really get gold stocks moving, the Dow needs to clear not just 12,200, but 12,800.
- The Dow has risen to the top of the Keltner supply line, and to push through 12,200, we need to see some very positive retail sales numbers, and very positive language coming from the Fed at the FOMC meeting today.
- Too many gold investors are asking the question, “Why isn’t gold rising in price?”, and not enough are asking the question, “Am I prepared?”. As a member of the gold community, you don’t just think gold is going higher; you want it to go higher. So do I.
- A gargantuan number of traders, funds, brokers, and banks are all keyed in the symmetrical triangle that exists on the gold chart. Most believe that the gold price broke down out of that triangle yesterday, ushering in the beginning of a fall to much lower levels on the price chart.
- Let’s take a detailed look at that triangle, and prepare a plan of action to deal with the possible liquidity flows that are taking place, based on the failure of the pattern.
- Click this gold triangle failure chart now. This is the gold chart that most of the world’s technical traders are focused on. The triangle didn’t fail yesterday. It failed when price “wet-noodled” out into the apex of the triangle.
- While most technical traders of size believe the failure of the pattern makes much lower prices likely, it’s important to remain rational and understand that when price oozes out into the apex of a triangle, it simply terminates the existence of that triangle. What just happened is not the same as a downside break in the price that comes well before the price hits the apex.
- The real bearish argument for lower prices comes not from a technical failure of the pattern, but from the liquidity flows of those who believe there was a sell signal given by that triangle yesterday. If buyers overwhelm sellers, price goes down. Period.
- Now, gold cowboys and cowgirls, I’d like you to click this hold onto your gold horses chart. Chart patterns created with closing prices can create a different picture to those created with intraday high and low prices, and this is one such example.
- You can see that using closing prices, there is no failure of the gold price triangle pattern. It is still intact, and still indicates an upside breakout is very possible.
- Gold ETFs carry a lot of weight in the gold market. They don’t trade at night time in many cases. Click this SGOL gold chart now. What do you see? Do you see any failure of the symmetrical triangle? No, you don’t. Do you see massive volume on yesterday’s down day? No.
- What you see is a picture of sellers hitting the road. With each move down in price, sellers are fading away. You need to understand that the market is a battleground. It’s not a battleground on some days, or just on the days when the news and price makes you feel giddy.
- The market is a battleground every single trading day, and there are those who exist to draw blood from their opponents, and those who exist to feel giddy. Which are you?
- Almost all of the gold that was sold yesterday was bought by market winners and strong hands.
- Silver held strong yesterday because it’s not a central bank reserve asset of size like gold is. Silver wasn’t lent out and shorted to build liquidity in European central banks.
- Still, don’t get too cocky if you are a silver enthusiast. You need to see the Dow hold strong and move higher, or it could face a new round of selling from worried investors of size, if the Dow melts. Silver is an industrial metal, as well as a precious metal, and the institutions that flow liquidity in and out of silver are keenly following the stock market.
- Approach the market as a fighter, not an analyst, or you’ll be waylaid by the liquidity flows of your opponents. The bottom precious metals line is that the symmetrical triangle on gold is largely intact when viewed with ETF charts and gold futures closing prices, and volume patterns indicate sellers are drying up like prunes in Death Valley.
- You’re a buyer or a holder of gold and related items. Wheat and corn have powerful bull wedge patterns, the overall action of central banks is gold-bullish, and oil is holding strong as Saudi Arabia redlines production to meet growing demand. The Dow may or may not have a sell-off, but the overall picture is one of a Dow anteater on steroids that is chewing into dollar bug resistance at Dow 12,200. I don’t see anything fundamentally or technically to be concerned about in the gold market, other than your own fears. There is nothing to fear, but your fear itself.
- Gold stocks did threaten to go parabolic several months ago, but the near-implosion of Europe’s financial system put that parabola on hold. As an investor, you need to put your parabola dreams on hold, rather than end the dream. Be realistic about the delays that Europe’s implosion means to your investments. It’s a delay, not a termination of your dream.
Dec 13, 2011
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