Gold Market Update
Originally published April 11th, 2009.
Why can't folks break the habit of being so pessimistic at market bottoms? Not that we're complaining, if they did that would be one less thing that we'd have to go on. With people writing in to say that gold is going to $800, or $700, things are definitely looking up. Funny that, I don't recall them writing in with these targets when gold touched $1000 in mid-February. Sentiment stinks, which is something that emboldens us. Earlier on, we had been in the pessimistic camp too as the pattern that has formed in gold from mid-January does look like a Head-and-Shoulders top that would project the price down to at least $800, but a confluence of bullish factors suggests that we are very close to a bottom, right now.
We will now examine the bullish factors pointing to the imminent birth of a new uptrend in gold. In addition to the important sentiment issue just mentioned, it is clear from the 6-month chart that gold has marked out a classic 3-wave zig-zag correction from its February high. Since the purpose of this retreat was to correct the entire uptrend that started back in October - November, it necessitated a breakdown from this uptrend that does not have longer-term bearish implications. As we can see, this 3-wave correction has brought the price back down to a zone of strong support and close to its 200-day moving average, which are coincident at this time - a very good place for the correction to end and a new uptrend to begin, especially as Stochastics are at their normal oversold limit.
The chart for gold in Euros is also highly encouraging as it shows that against this currency gold has reacted back to classic buying territory in a zone of strong support above a rising 200-day moving average. We have switched to using the Euro instead of the Swiss Franc, as thanks to the Swiss Central Bank’s announced and implemented policy of getting the Swiss to move almost point for point with the Euro, it is now regarded as in effect a Euro clone. Maybe Switzerland is limbering up to join the European Union at last, with the tantalizing prospect of all those bank vaults being opened up for inspection by officials from Brussels and Strasbourg.
If we lift our gaze from the gold chart and look around at what is going on elsewhere, there are definitely a number of synchronous developments going on that are pointing to a resumption of gold's uptrend. One is that silver is completing a fine and very bullish Cup & Handle base pattern, which can be seen on the chart in the parallel Silver Market update. In addition to which copper and crude oil have been improving in recent weeks, indicating that the entire commodity complex is picking itself up off the floor.
Of even greater significance to us, however, as opportunists in junior mining stocks, is the strongly bullish chart for the Canadian CDNX index, which can fairly be regarded as the index chart for junior mining stocks, even though it does include a sprinkling of stocks in other sectors. For on the 1-year chart for this index we can see that it is very close to completing a fine bullish classic Head-and-Shoulders bottom. Once it breaks back above 1000 sentiment is expected to improve rapidly and drive a powerful rally, and it should be obvious from the foregoing discussion that such a rally will be underpinned by a new uptrend in gold and silver.
On clivemaund.com we aren't letting the grass grow under our feet. If people insist on selling quality junior mining stocks at the current absurdly low prices then we have a duty to provide them with a market to sell into. This is why we have been mopping them up again over the past week or two, having traded out of them at a good profit back in February, and will aim to scoop up more of them next week.
Finally it should be noted that gold could drop down a little more towards $850, which would necessitate us redrawing the tentative lower trendline shown, one scenario being a brief rally here followed by a sharp downwards stab that mortifies remaining bulls. Such a move would not negate our bullish scenario and only make make gold that much more attractive. There is a good chance, however, that we saw the final low about a week ago.