Wednesday, 29 October 2014

Gold's goodbye kiss?

When a stock or commodity breaks down through a major long-term support line in its chart, it is not unusual for the price action to come back up and back-test the (previous) support line from below.

Sometimes these back-tests can be strong or extended. Sometimes the price action may temporarily pierce back above the (previous) support line, to encourage the bulls.

Gold appears to have broken down below its bull market support line on the log chart, and appears to have been back-testing the breakdown. Time will tell:

This back-testing process of a critical breakdown is often referred to as "the kiss goodbye".

Friday, 24 October 2014

Between a rock and hard place?

Is the senior gold and silver mining index, the XAU, between a rock and a hard place?

The point-and-figure chart seems to think so...

The price objective of the point-and-figure chart is 48, a fair distance below current levels. These types of projections need to be taken with a grain of salt, as they tend to be painfully slow in adapting to key changes in the technical posture of an item. But they can be useful for suggesting possibilities IF a trend were to continue to its potential. Not all trends do so, of course.

The technical posture of the precious metals complex as a whole is fairly unappealing at the moment,  at least to my eyes. Under such circumstances, I wouldn't be quick to discount the glum point-and-figure projections for the XAU -- or for gold:

The point-and-figure projection for gold is $1050, which happens to be Goldman Sachs' much touted price target for gold.

A final note: the holdings of gold in the vaults of the big gold ETF GLD hit another bear market low at a recently reported 745.39 tonnes.

What is disconcerting to bulls is that GLD gold holdings declined markedly into the most recent gold rally, suggesting (to me) that investors were likely using the recent strength in gold as an opportunity to unload.

Wednesday, 22 October 2014

Can palladium get some help from its friends?

Palladium, the recent darling of the precious metals sector, is looking like it could use a little help from its friends.

How is its friend the U.S. dollar doing by way of the USD bullish fund UUP?

Hmmm... Doesn't look like that friend is of much help at the moment.

Monday, 20 October 2014

A meditation on the yen

Gold in recent years appears to have a strong correlation to the yen (weak yen = weak gold). Correlations can change, but for now, it is what it is.

When the yen broke down from the blue uptrend line earlier this year, currency traders took note. That key breakdown has been strongly back-tested on the recent rise.

Wednesday, 15 October 2014

A meditation on the Euro

Gold and the euro have had a strong correlation for many years. As the euro rose, gold tended in general to rise with it. As the euro fell, gold tended in general to fall in sympathy. The relationship makes sense in that a strong euro suggests a weaker U.S. dollar, and vice versa.

The correlation of gold lately has been strongest with the Japanese yen (weak yen = weak gold), but the long-running correlation with the Euro appears to still be in play.

As such, it is worth contemplating a long-term chart of the Euro:

Earlier this year, the euro made breakdown of its long-term support line -- an earthquake in currency terms. That breakdown appears to be be in the process of being strongly back-tested.

If the euro can manage to close above its broken support line with conviction, then gold has a chance to stabilize, if not bottom.  The jury is out on whether the euro can find sustained strength going forward.

The headwind for a stronger euro is that Europe appears to be an unfolding economic disaster, as deflation tightens its icy grip. And a broken 15-year support line is not something to be taken lightly.

Tuesday, 14 October 2014

A meditation on gold

More often than realized, the stock markets act like an organic, living system. The stock markets are after all, the product of the actions of millions of people.

Fibonacci retracements -- the mathematic roots of which are found throughout nature -- are used extensively by investors in the market precisely because the markets often respond to an apparent hidden natural order.

Markets often move in legs or waves up and down. And these waves or legs will often share uncannily similar aspects or features for those who care to look closely. Such waves can sometimes be compared to ripples in a pond.

Some of the great minds in physics and mathematics have noted that the stock markets appear to be fractal on many levels. Put very simply, a fractal is a natural repeating pattern, not necessarily exact. When referring to the stock market, I prefer to call them repeating behaviours.

Consider the following chart not as a price chart, but rather as a meditation -- perhaps a much needed one for investors struggling to make sense of the recent confounding action in the precious metals markets.

It is a meditation for contemplating a possible fractal or what I call an "echo formation" in the gold ETF GLD, my proxy for the gold action:

One can never have complete certainty that a possible fractal is active, or will play out as anticipated. There are no guarantees in the markets.

IF this fractal is active, it appears it is attempting to communicate a message.