Gold Moved Higher, But Is This Move Really The Beginning of a New Upleg?

By: Przemyslaw Radomski, CFA | Sat, Jan 9, 2010
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This essay is based on the Premium Update posted January 8th, 2010

The decade just ended was one in which the U.S. endured two market crashes, one at each end of the decade, the terrorist attacks of 9/11, a war in Afghanistan and a fiasco in Iraq that still drags on, Wall Street scandals highlighted by Enron, Hurricane Katrina, and the recent near economic meltdown. Is it any wonder then that Time Magazine couldnt quite decide how to call this decade? The magazine came up with a few names: Decade from Hell, or the Reckoning, or the Decade of Broken Dreams, or the Lost Decade.

"Book ended by 9/11 at the start, and a financial wipeout at the end, the first 10 years of this century will very likely go down as the most dispiriting and disillusioning decade Americans have lived through in the post-World War II era...Call it whatever you want -- just give thanks that it is ...over."

Noble Prize winning economist Paul Krugman had no problem at all coming up with a name for the decade. He called it The Big Zero.

In his New York Times column Krugman wrote: "It was a decade in which nothing good happened, and none of the optimistic things we were supposed to believe turned out to be true."

He has his reasons for calling the past decade The Big Zero. He says it was a decade of:

Krugman reminds readers of the excitement in 1999 when the Dow first topped 10,000. Summing up Krugman says:

"So there was a whole lot of nothing going on in measures of economic progress or success... So lets bid a not at all fond farewell to the Big Zero -- the decade in which we achieved nothing and learned nothing."

We are now poised at the beginning of a new year and a new decade. We can hope that the bad things that happened in the first decade were a coda to the previous century, and not an overture of whats to come. Today the US is cleaning up the mess from the largest financial collapse in history. There is no doubt, as we have written before, that the US will remain vulnerable to misgivings about its sovereign creditworthiness. This is especially so when you consider the high proportion of US debt held overseas.

What would we call this decade at Sunshine Profits? From our point of view its nothing short of the "Golden Decade." It was surely golds turn to shine. A $100 investment in gold when the market opened on January 3, 2000, was worth about $380 as of the end of the decade, for a total return of 280 percent and an annualized return of 14.3 percent. Gold stocks (as measured by the XAU Index) have also had a good decade, climbing 9.4 percent annually.

For this coming year and perhaps even for this coming decade, we're betting on silver and gold, also in the form of mining stocks.

Moving on to the technical part of the commentary, this week I would like to provide you with analysis of gold and silver. Let's begin with the yellow metal (charts courtesy of http://stockcharts.com).

The price of gold moved higher this week, but it was stopped by the resistance level created by the small December top. The history suggests that the gold market often corrects in the form of a zigzag, and the one that we have seen so far is in my opinion too small to say that "that was it".

Please compare the December 2009 downswing to the similar moves in the past that I've marked with red rectangles. Each time correction had two stages, and even the smallest one (June-July 2009) had the biggest upswing within it, than what we've seen in the mid-December 2009. This alone suggests that the current move up is in fact an upswing within a move lower.

The current situation in the featured indicators: RSI and Stochastic, is also similar to the ones from the time frames marked with red rectangles, which serves as a confirmation of the above analysis.

Additional confirmation comes from the analysis of the white metal.

The situation on the silver market is also similar to the ones that already took place, also with similar implications to the ones mentioned earlier.

The tendency for the silver to correct in more than one stage is even stronger for the white metal than it is for the yellow one, especially after big upswings. This has a lot to do with the fact that silver is generally more volatile than gold, but I don't want to get into details of this mechanism in this particular essay. The point here is that what we've seen up to date is most likely just a first part of the decline. We doubt that the second part would take us much below the recent low, but it appears likely that it will take some time (a week or a few of them) before the final bottom for this decline is put.

Please take a look at the situation in the Stochastic indicator. During past corrections it formed some kind of double-bottom, after which it rallied to/above the 80 level only to correct soon after that. This is where we are today - at the moment Stochastic indicator has just moved above the 80 level. Should the history repeat itself once again, silver may move lower soon.

Summing up, it MAY be the case that the bottom is behind us and the risk being left behind is too big for one's long-term holdings - at least in our view. However, there are still several points that make this situation unclear in the short run. More details are available to Subscribers. It may be a good idea to subscribe now, because today's Premium Update includes rankings of the top gold/silver juniors (we've added 2 new stocks to our gold junior list).

To make sure that you are notified once the new features (like the newly introduced Free Charts section) are implemented, and get immediate access to my free thoughts on the market, including information not available publicly, I urge you to sign up for my free e-mail list. Sign up today and you'll also get free, 7-day access to the Premium Sections on my website, including valuable tools and charts dedicated to serious PM Investors and Speculators. It's free and you may unsubscribe at any time.

Thank you for reading. Have a great and profitable week!

 


 

Przemyslaw Radomski, CFA

Author: Przemyslaw Radomski, CFA

Przemyslaw Radomski, CFA
Founder, Editor-in-chief
Gold & Silver Investment & Trading Website - SunshineProfits.com

Przemyslaw Radomski

Przemyslaw Radomski, CFA (PR) is a precious metals investor and analyst who takes advantage of the emotionality on the markets, and invites you to do the same.

His company, Sunshine Profits, publishes analytical software that anyone can use in order to get an accurate and unbiased view on the current situation.

Recognizing that predicting market behavior with 100% accuracy is a problem that may never be solved, PR has changed the world of trading and investing by enabling individuals to get easy access to the level of analysis that was once available only to institutions.

High quality and profitability of analytical tools available at www.SunshineProfits.com are results of time, thorough research and testing on PR's own capital.

PR believes that the greatest potential is currently in the precious metals sector. For that reason it is his main point of interest to help you make the most of that potential.

As a CFA charterholder, Przemyslaw Radomski shares the highest standards for professional excellence and ethics for the ultimate benefit of society.

Sunshine Profits enables anyone to forecast market changes with a level of accuracy that was once only available to closed-door institutions. It provides free trial access to its best investment tools (including lists of best gold stocks and best silver stocks), proprietary gold & silver indicators, buy & sell signals, weekly newsletter, and more. Seeing is believing.

Disclaimer: All essays, research and information found above represent analyses and opinions of Przemyslaw Radomski, CFA and Sunshine Profits' associates only. As such, it may prove wrong and be a subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Przemyslaw Radomski, CFA and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Radomski is not a Registered Securities Advisor. By reading Przemyslaw Radomski's, CFA reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Przemyslaw Radomski, CFA, Sunshine Profits' employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

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