Gold Analysis and Strategy 4th of September 2010
Gold Spotprice Analysis
Gold in USD (one ounce = US$1,247.00)
- Since it's latest setback on 24th of august back to flat 50-dMA (US$1,210.97US$) Gold immediately turned higher again and reached effortlessly the shortterm target around US$ 1,253.00.
- Logically the resistance area between US$1,250.00 and US$1,265.00 is not that easy to overcome and Gold should therefore oscillate around these number for some more time to gain power for the breakout. The upper Bollinger Band (US$1,258.54) offers already enough space for a climb towards US$1,260.00. Every setback should now be limited to a maximum drawdown to US$1,231.00, although to me it looks like we won't see prices under US1,240,00US$ anymore.
- Of course after that impressive US$100 rally since end of july the danger of a bigger correction is now much higher. But the dynamic character of that move speaks much more for a breakout to new highs and a strong rally until end of november or mid of december.
- The medium- and longterm picture is unchanged and still very bullish. My next price target is the Fibonacci - Extension (261,8% of the last big correction) at US$1,600.00. This might be possible until end of this year or spring 2011.
- The DowJones/Gold Ratio is nearly unchanged at 8.38 points. However during the last two weeks it moved down under 8 already and was only able to recover due to the shortsqueeze in the stock market last week. A move in this ratio down below 8 points confirms the new rally in Gold and underlines the longterm move away from paper assets towards hard assets like precious metals and commodities.
- Long term I expect the price of gold moving towards parity to the Dow Jones (=1:1). The next primary cyclical change is still years away. This means we are still in a long term bull market in gold (and also commodities) and in a secular bear market in stocks.
Gold in EUR (one ounce = 967€)
- Calculated in Euro Gold did hardly move during the last two weeks, although it reached the important 61,8% Fibonacci Retracement at 986€ from where it started a small correction so far.
- As I have mentioned already a couple of times I do not expect €-Gold to cleary take out the all time high at 1046€ until end of this year. My supposition is that Gold in US$ will move up strongly but at the same time the US-Dollar will be very weak until end of this year. Therefore gains in €-Gold should be limited. A weak dollar would be supportive for the the stock markets as well.
- Due to the explosive situation and "Quantitative Easing 2.0" including massive tax cuts in the US I do increase my buylimit for physical gold investment up to 940€. This equals round about the 50-dMA (946€).
- Every setback down to 200-dMA (875€) or under 900€ of course is a clear and strong physical buy.
Goldbugs Index USD (487.21 points)
- As well the HUI goldmining index reached its critical resistance zone at around 500-525points. If the breakout succeeds we should witness an explosive rally that could take the index up to around 750 points which equals a 50% increase.
- To maintain this positive scenario the index should not fall under 475 points anymore.
Gold COT Data
- The amount of short contracts by the commercials increased significantly during the last two weeks and is now at critical levels. This is a clear warning signal.
- At the same time one could argue that the commericals are not able to supress the goldprice anymore.
04/18/2009 = -153,419 (PoG Low of the day = US$885)
12/01/2009 = -308,231 (PoG Low of the day = US$1,190)
05/11/2010 = -282,644 (PoG Low of the day = US$1,201)
06/15/2010 = -278,944 (PoG Low of the day = US$1,220)
06/22/2010 = -288,916 (PoG Low of the day = US$1,232)
06/29/2010 = -289,956 (PoG Low of the day = US$1,231)
07/06/2010 = -249,142 (PoG Low of the day = US$1,191)
07/13/2010 = -248,348 (PoG Low of the day = US$1,197)
07/20/2010 = -215,664 (PoG Low of the day = US$1,175)
07/27/2010 = -227.555 (PoG Low of the day = US$1,156)
08/03/2010 = -222.029 (PoG Low of the day = US$1,180)
08/10/2010 = -230.980 (PoG Low of the day = US$1,192)
08/17/2010 = -249.570 (PoG Low of the day = US$1,223)
08/24/2010 = -264.300 (PoG Low of the day = US$1,210)
08/31/2010 = -284.561 (PoG Low of the day = US$1,232,
High of the day = US$1,250)
Gold Seasonality
- The month of september starts the strongest phase of the year for the entire precious metals sector. In addition comes the fact the the monsoon in India this year passed quite normally and the Indian wedding season is starting. According to the world gold Council, in 2009 India was responsible for 25% of the global jewelry demand and for 19% of the worldwide coin and bullion demand. Until the start of the Hindu new year festival "Diwali" on the 5th of November there should be a larger demand coming from India, that will well support the physical market. In addition the inflationary tendencies in India seem to be worsening and could bring even more buyers into the gold market.
Gold Sentiment
There have been some clear changes in the Put/Call Ratio during the last two weeks. The number of outstanding Puts was reduced in the last week of august by more than 10%! The market participants are clearly positioned for higher prices to come.
| Date | Total Calls | Total Puts | PC Ratio |
| 08-27-2010 | 512636 | 306670 | 0.598 |
| 08-20-2010 | 506650 | 341343 | 0.674 |
| 08-13-2010 | 479883 | 327881 | 0.683 |
| 08-06-2010 | 464943 | 310577 | 0.668 |
| 07-30-2010 | 444253 | 285816 | 0.643 |
| 07-23-2010 | 539221 | 392250 | 0.727 |
| 07-16-2010 | 512312 | 369411 | 0.721 |
| 07-09-2010 | 499068 | 352830 | 0.707 |
| 07-02-2010 | 482514 | 332925 | 0.690 |
| 06-25-2010 | 451881 | 309270 | 0.684 |
Conclusion
- Mid- and longterm term Gold should be on the way to my next price target around US$1,600.
- Looking forward to the next couple of months I am very sure to see a strong continuation of the rally in gold and precious metals. My first price target is at US$1,339.00, then US$1,441.00, US$1,521.00 and finally maybe even US$1,600.00 until spring 2011. I will give you more detailed calculations in one of my next issues.
- Shorterm (the next couple of days/maximum two weeks) I expect a volatile back and forth between US1,240.00 and US$1,265.00. Similar to last friday afternoon every vertical setback will be bought immediatly and everybody waiting for a bigger drawdown is left out. We should not see Gold dropping down below US$1,230.00 anymore otherwise this would be a clear warning signal that another correction is necessary.
- Another prerequisite for a parabolic rally in gold within the next couple months would be that the stock market (driven by "Quantitative Easing 2.0") can recover after the typical september weakness and will finish stronger towards the end of the year.
Recommendations:
Bob Hoye: Gold - Boxed in http://www.321gold.com/editorials/hoye/hoye090210.html
Richard Russel: Dizzy and Confused? http://www.321gold.com/editorials/russell/russell090210.html
Richard Russel: My take on gold http://www.321gold.com/editorials/russell/russell082610.html
The BIG Move Is Still To Come! http://investmentscore.com/editorials/the-big-move-is-still-to-come.php
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