Gold Rebounds and Gains Momentum

By: Przemyslaw Radomski | Fri, Jan 13, 2012
Print Email

Based on the January 13rd, 2012 Premium Update. Visit our archives for more gold & silver analysis.


 

Gold rallied this week hitting its highest in a month and breaking above its 200-day moving average. There were a myriad of reasons suggested in the financial press. Some writers said it was a stronger euro that helped boost the price above the key technical level. One headline said it was due to a buying binge from China ahead of the Lunar New Year which begins January 23. (The country imported a record 103 tons of gold from Hong Kong in November, up 19% month-on-month and a 483% increase year-on-year.) Another headline attributed the rise in the price of gold to active demand from India where consumers took advantage of a drop in local prices to stock up ahead of the wedding season beginning later this month. Whatever the reason, we gave you a heads up as long ago as on January 3rd, when we wrote in our essay on a bottom in the precious metals sector:

The fact is that "breakdowns" similar to the one we're seeing just now have been (in all cases seen on the chart) followed by the final bottom of the consolidation (not too far below the line that is has broken), which was in turn was followed by a strong rally. In these cases, lower prices were never seen thereafter. Consequently, from both fundamental and technical perspectives, gold remains in a bull market, and what we're seeing right now may be the best buying opportunity that we'll see in the coming years.

Seasoned gold investors know that gold prices can be quite volatile - with big upswings often followed by big downswings, albeit wrapped around a rising long-term trend. At every downturn the gold bears have come out of the woodwork. And just as they have been repeatedly wrong in the past decade, they are still wrong (in our opinion) in 2012. Before this week's rise, the Wall Street Journal wrote an obituary for gold as a safe haven. The article by Stephen L. Bernard said that "it turns out gold is just another metal after all." It noted that after trading for much of 2011 as a safe haven, gold is acting more like other commodities and riskier assets these days.

For much of the past two years, when the economic slowdown and European debt crisis sent investors looking for low-risk assets, gold traded in the opposite direction of the euro. Gold could return to its safe-haven status again if the Federal Reserve embarks on another round of bond buying, which would likely hurt the dollar, analysts said. Gold is priced in dollars so it becomes cheaper to buy using other currencies when the dollar weakens. It can also serve as an alternative safe haven when U.S. currency loses its appeal.

At Sunshine Profits we are far away from writing the obituary for gold. At this point there are no indications that gold would not be up again in 2012 - so the trend should remain in place.

Even if you're extremely bullish on gold in the long-term, you may want to know what the short-term outlook for gold is. Let's begin the technical part with the analysis of gold to bonds ratio (charts courtesy by http://stockcharts.com.)

$GOLD:$DJCB Gold (EOD)/DJ Corp Bond TR

In the gold to bonds ratio chart, we also see bullish signs. The recent bottom formed close to the long-term support level and the index is now right at it after a period of zigzag correction. When comparing current patterns with the trend seen in 2006, it seems likely that a move to the upside will be seen from here.

$GOLD:$UDN Gold (EOD)/PS DB US$ Bearish

In the long-term chart of gold from a non-USD perspective, we can see that prices are clearly back within the rising trend channel. The pattern here is very similar to what was seen in the middle of 2011 and suggests that a powerful rally without a significant pause is quite possible. After such a rally, a prolonged consolidation would be probable once new highs have been reached. The implications here are different than from the comparison between today and 2006 - consolidation at previous highs vs. no consolidation. However, in any of these scenarios, the weeks ahead should see higher gold prices - also from a non-USD perspective.

GLD SPDR Gold Trust Shares

In the short-term GLD ETF chart, we see that gold is about to reach the upper border of the declining trend channel and its 50-day moving average. We could see a pause and possible consolidation around this $163 price level. The outlook will remain bullish here unless a top forms and a decline is seen on significant volume. On the other hand, if the decline takes place above the $163 level and takes gold no lower than to this particular level, it would be a very bullish development and we would likely consider adding to long positions.

Summing up, the outlook for the medium and long term for gold is bullish. The short term could very well see an insignificant pause at some point in the next 5 to 10 trading days with the rally resuming thereafter. More serious correction will likely be seen once gold moves higher, however we will leave details to our Subscribers.

To make sure that you are notified once the new features are implemented, and get immediate access to my free thoughts on the market, including information not available publicly, we urge you to sign up for our free e-mail list. Gold & Silver Investors should definitely join us today and additionally get free, 7-day access to the Premium Sections on our website, including valuable tools and unique charts. It's free and you may unsubscribe at any time.

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

 


 

Przemyslaw Radomski

Author: Przemyslaw Radomski

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.

Copyright © 2009-2014 Przemyslaw Radomski, CFA

All Images, XHTML Renderings, and Source Code Copyright © Safehaven.com

SEARCH





TRUE MONEY SUPPLY

Source: The Contrarian Take http://blogs.forbes.com/michaelpollaro/
austrian-money-supply/