Friday, February 27, 2009

Friday Quiz: Is Gold Set to Rise or Fall?
February 27, 2009

Answer: nobody knows. But there are technical reasons to expect a pullback within a long-term uptrend. Risk management suggests caution at the moment.

What with all the buzz about gold touching $1,000/ounce again (when priced in dollars), I asked frequent contributor Harun I. for some charts and commentary on the yellow metal.
Harun was kind enough to share some charts on oil yesterday, Oil Market Update (February 26, 2009) and recently he shared the possibility that the general market might well be setting up for a Bear Market rally: Forgotten Indicators: Is the Stock Market About to Turn Up? (February 5, 2009)

Please go to http://www.oftwominds.com/blogfeb09/gold02-09.html to view the charts.

Chart 1. Long term, Gold is still in an uptrend. The 2008 annual high is being tested and January's highs were unambiguously taken out. October was the 4th quarter 2008 low. It was important that October's strong down bar was not confirmed by follow through. As the upper band comes under pressure this rally may stall. MACD is divergent with the major histogram (red) coming up against signal line resistance. Price at the upper and without confirmation from MACD usually leads to a correction.

Chart 2. Commitment of Trader data suggests that net-percent open interest of Commercial and Large traders has reached a level which has shown to facilitate sustained rallies. Overall open interest is increasing at a significant rate-of-change -- another indication of sustainable activity. The intermediate level bollinger bands are expanding indicating good volatility on the breakout at this level of trend.

Chart 3. Daily chart with 200-day Bollinger bands and RSI indicate that price is at a relative high and overbought. The earlier divergence noted in RSI went unconfirmed. This is why it is usually a good idea to wait for price to confirm. More aggressive traders may have tested the market on the basis of the divergence. However one trades, the important thing is risk management. The 200-day mean is turning up. History shows that after the upper or lower band is achieved with an RSI overbought/oversold reading a correction has occurred.


Gold may have completed its correction but timing is everything. From a purely educational perspective entry now may not be advantageous based on the risk/reward scenario. March may see a correction that sets up a challenge of the highs for the second quarter. Thank you, Harun. Gold has a knack for becoming overloved, and then it's time to be careful. As a naive rube I learned this the hard way back in 2004 when $500 was the "guaranteed target"... alas it promptly dropped to $450.

Yes, it's a wonderful store of purchasing power and yes, it's in a long-term uptrend, and yes, I own it and ABX, but that doesn't negate the notion that buying on the dips rather than at the tops is a worthy money-management goal.

As usual, this is not investment advice, just a free opinion by an amateur; please read the HUGE GIANT BIG FAT DISCLAIMER on the main blog page.

Books of interest mentioned this week:

The Fall of the Roman Empire
Collapse: How Societies Choose to Fail or Succeed
The Collapse of Complex Societies
Fruitless Fall: The Collapse of the Honey Bee and the Coming Agricultural Crisis
The Coming Economic Collapse: How You Can Thrive When Oil Costs $200 a Barrel
Reinventing Collapse: The Soviet Example and American Prospects
Shameless pitch for my own book: Weblogs & New Media: Marketing in Crisis

Of Two Minds reader forum (hosted offsite, reader moderated)

What's for dinner at your house?
has been updated with two new recipes:
Quick Easy Vegetable Soup and Pork Butt Stew.

New Operation SERF Installment:
Operation SERF, Part 10
Chris Sullins' "Strategic Action Thriller" is fiction, and on occasion contains graphic combat scenes.



Thank you, Jason Y. ($10) for this latest in your most generous contribution to this site. I am greatly honored by your support and readership.

Thank you, Evan O'B. ($25) for your most-welcome very generous contribution to this site. (Hello to Oz!) I am greatly honored by your support and readership.

Terms of Service

All content on this blog is provided by Trewe LLC for informational purposes only. The owner of this blog makes no representations as to the accuracy or completeness of any information on this site or found by following any link on this site. The owner will not be liable for any errors or omissions in this information nor for the availability of this information. The owner will not be liable for any losses, injuries, or damages from the display or use of this information. These terms and conditions of use are subject to change at anytime and without notice.


Our Privacy Policy:


Correspondents' email is strictly confidential. This site does not collect digital data from visitors or distribute cookies. Advertisements served by a third-party advertising network (Investing Channel) may use cookies or collect information from visitors for the purpose of Interest-Based Advertising; if you wish to opt out of Interest-Based Advertising, please go to Opt out of interest-based advertising (The Network Advertising Initiative). If you have other privacy concerns relating to advertisements, please contact advertisers directly. Websites and blog links on the site's blog roll are posted at my discretion.


PRIVACY NOTICE FOR EEA INDIVIDUALS


This section covers disclosures on the General Data Protection Regulation (GDPR) for users residing within EEA only. GDPR replaces the existing Directive 95/46/ec, and aims at harmonizing data protection laws in the EU that are fit for purpose in the digital age. The primary objective of the GDPR is to give citizens back control of their personal data. Please follow the link below to access InvestingChannel’s General Data Protection Notice. https://stg.media.investingchannel.com/gdpr-notice/


Notice of Compliance with The California Consumer Protection Act
This site does not collect digital data from visitors or distribute cookies. Advertisements served by a third-party advertising network (Investing Channel) may use cookies or collect information from visitors for the purpose of Interest-Based Advertising. If you do not want any personal information that may be collected by third-party advertising to be sold, please follow the instructions on this page: Limit the Use of My Sensitive Personal Information.


Regarding Cookies:


This site does not collect digital data from visitors or distribute cookies. Advertisements served by third-party advertising networks such as Investing Channel may use cookies or collect information from visitors for the purpose of Interest-Based Advertising; if you wish to opt out of Interest-Based Advertising, please go to Opt out of interest-based advertising (The Network Advertising Initiative) If you have other privacy concerns relating to advertisements, please contact advertisers directly.


Our Commission Policy:

As an Amazon Associate I earn from qualifying purchases. I also earn a commission on purchases of precious metals via BullionVault. I receive no fees or compensation for any other non-advertising links or content posted on my site.

  © Blogger templates Newspaper III by Ourblogtemplates.com 2008

Back to TOP