Musings on Gold
"The paradox is really the pathos of intellectual life and just as only great souls are exposed to passions it is only the great thinker who is exposed to what I call paradoxes, which are nothing else than grandiose thoughts in embryo." - Soren Kierkegaard 1813-1855, Danish Philosopher, Writer
It looked like Gold might have broken through the main down trend line that has been providing a serious layer of resistance however it failed once again. It then plunged rapidly; the picture still looks strange and we have no major buy yet. A break below 416 will indicate further weakness in bullion.
It still appears that most of this move up in Gold was due to the closure of many of the huge short positions in the dollar and long positions in the Euro. Since both these groups hate the dollar the next logical bet was Gold. Watch the 90.30 and then 92 levels on the dollar index; both these areas have huge stop loss orders in. In retrospect it appears we became bullish on the dollar a bit too early but in the end our bullishness paid of; now everyone is scratching their heads wandering why the dollar keeps rallying.
One major positive from this is that Gold rallied with the dollar and so it appears that for the first time ever that Gold might actually be in a true long term bull market as it has rallied in almost all the major currencies in the last few weeks, something it was unable to do in the past.
We would like to stop here and address some issues. Many of you Gold bugs actually we should say Gold fanatics (because only a fanatic could twist our words and come up with a totally different message) go completely ballistic the moment we say anything that is not 100% bullish in regards to gold; to you chaps we only have two words "get a life". We are not forcing you to read our articles and so if you have any issues please go share them with your friends in the local mental hospital.
We have never advocated shorting Gold or turned negative on it from a long term perspective. All we have done is from time to time suggest taking profits as we did in Nov 2003 and indeed that proved to be 100% accurate. Our last Gold article simply stated that we were not bullish on Gold bullion yet but that Gold stocks were extremely beaten down and that they should start to put in some interesting channel formations; hardly a bearish scenario as most Gold fanatics alluded too; listed below is an excerpt from our last article.
One interesting contrarian development is that Gold is now among the 10 worst sectors; gold stocks should start putting in some nice very nice formations and the strong ones will be the first to break out. full article
So we are going to once again state our position on Gold
Very long term and long term= Bullish
Intermediate= Neutral to slightly bullish (slightly bullish only in regards to Gold stocks)
Short Term= neutral
We have also stated a million times in the past that this is a Commodities bull and not just a Gold bull. So stop falling in love with one small part of this huge commodities bull market. To those of you who keep writing in and suggesting we are misleading our subscribers; we think you should address those letters to yourselves.. Since we took profits in Gold in Nov 2003 (we still have a core gold position and believe everyone should have one) we have done very well with all the new positions we took in the Energy sector, Nanotech sector, key biotech stocks etc. We do not sit on the sidelines praying for one sector to come down; opportunity is forever knocking, one just has to be awake and ready to answer the door.
For those of you that don't mind locking your teeth and taking in some pain then Gold stocks do look pretty attractive from a long term perspective. In a follow up article (probably sometime next week) we will look at the Dollar in more detail.
Let's take a closer look at some charts; XAU 1 year chart, XAU 3 year chart and NEM 1 year chart.
1 year chart
Clearly we are still a long way from the long term up trend line and the down trend line has not been penetrated to the upside; so the picture is not a bullish one yet. However the XAU has corrected so much that for risk takers and those that don't mind some acid it makes sense as a long term investment.
3 year chart
The XAU rallied strongly and then ran into solid resistance when it tried to break above the 3 year up trend line; the situation is still not bullish from a 3 year perspective too. In addition the main down trend line has not been penetrated to the upside either nor have we come close to doing so in 2005.
1 year chart
Bell weather NEM is still locked in a down trend and is trading significantly off its main up trend line. The 3 year chart is also negative. However as we stated before most Gold stocks have been smashed to pieces so from a long term perspective nibbling now could make some sense as long as you can handle some acid. Under no circumstances should anyone be idiotic enough to put 100% of their money into the Gold Sector or any other sector for that matter of fact; doing so will bring about a huge amount of pain and it goes against all the principles of basic money management.
We are still not bullish on Gold bullion and are neutral on Gold stocks; there are some gold stocks that look pretty good at current levels because they have been smashed so badly. So from a value point they look pretty good and also from a basic Technical analysis point of view. We would however like to state that everyone should have a core position in Gold and Silver bullion, if you don't have one use major pull backs to establish one.
We rate sectors in terms of strength and even though Gold is looking much better now then it did last year there are still other sectors that are scoring higher then it. We are unbiased investors and so we position ourselves in sectors that are building up strength, getting ready to explode and that are being completely ignored by the masses.
Final note platinum usually leads Gold and once again it pulled back hard and fast first after taking off from the 845 levels.
"The paranoiac is the exact image of the ruler. The only difference is their position in the world. One might even think the paranoiac the more impressive of the two because he is sufficient unto himself and cannot be shaken by failure." - Elias Canetti 1905-, Austrian Novelist, Philosopher
All charts were supplied courtesy of www.prophetfinance.com