Carnies Everywhere

By: John Mackenzie | Fri, Nov 4, 2005
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Figure 001: $XAU Weekly

For the High price of $115.24 and the Low price of $78.23, the retracement levels are:

38% level = $101.10
50% level = $96.74
62% level = $92.37

Figure 002: $XAU Daily

On August 31, 2005 the XAU closed @ the 95.77 level, the following day, September 1 st, the XAU opened @ the 96.40 level and closed the session @ the 99.15 level.

This gap left a 63 basis point hole that could be filled very quickly, it is very near a 50% retrace of the entire move off of the May 17, 2005 opening level of 79.07.

Looking at the above two charts it appears they are at odds.

The Weekly XAU appears ready for a correction, but the 65/98 SMA cross should be Bullish. Yet the RSI appears to be carving out some sort of exhaustion.

The Daily chart in Figure 002 is of concern in the Short Term, the volume has exhausted itself and the XAU appears ready for a correction, a very swift and violent one.

I had believed we would see new highs this week in the XAU. I am no longer looking for this to occur, but instead for it to test the old highs on much lighter volume and then begin to fail.

Figure 003: $GOLD Weekly

For the High price of $480.42 and the Low price of $410.40, the retracement levels are:

38% level = $453.67
50% level = $445.41
62% level = $437.15

It is difficult to imagine a retracement this deep in GOLD at this juncture, but I would caution the Bulls here. Although sentiment indicators are reaching important lows, they do have further to fall.

Figure 004: $GOLD 1979

During October of 1979, GOLD peaked @ $426.00 and fell back to a low of $372.00; a loss of $54.00 or 12.6%, with the low being retested an additional time after rising back to the $413 level, only to return back down to $374.00

From October 29, 1979 to December 28, 1979, the price of GOLD went form $374.00 to $512.00 in 40 trading sessions; a move of 36.8% in less than two months time.

This is the type of volatility I believe we are about to see in GOLD over the coming days.

If we do not breach the $475 and then the $480 level on this next move up, in my opinion, we are setting up for a potentially violent move back down.

If, we do in fact break out to the upside in the next five trading sessions, I suspect GOLD will run up to its 50% retracement level of the entire two decades long Bear Market.

Once we have convincingly broken through this level after back testing the break out from $480, I believe we will be well on our way to a new and extremely exciting Bull Market in GOLD and the Precious Metals Sector.

I believe and have suggested for many years, it is important to be well positioned in the Precious Metals prior to buying a single Mining Equity.

It can go either way; no one knows what lay ahead.

We remain in entirely uncharted waters and if the past is prologue, we should consider the Price action in 1979 as an important indicator.


Author: John Mackenzie

John Mackenzie

John Mackenzie manages private capital.

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