Diary of a Financier

Gold’s 2009 Analogue: Golden [Buying] Opportunity

In Capital Markets on Mon 5 Nov 2012 at 23:05

I made light of my buying activity in the Gold ETF (GLD) on Thursday. I’m long overdue for an update regarding my analysis of the yellow metal, so here you go…

Gold (GC/) launched higher out of a long term bull pennant in July. GC has since formed a Cup & Handle, which I’ve been tracking for almost a month now. I bought last week because its handle has neared support at both 50% Fibonacci retracement & the 200 DMA:

GC daily- C&H’s handle is near 50% Fibonacci & 200 DMA support ~$1662.

The monthly fractal’s indicators suggest that the long term bull trend will persist:

GC daily/weekly/monthly- daily broke out fm symmetrical wedge (part of LT bull pennant) & formed C&H; monthly indicators show promise for continued bull trend.

Finally, an analogue has developed wherein 2009 may serve as a good [bullish] guide for GC henceforth:

GC 2009 v 2012 analogue- 2009 suggests Gold will catapult higher from here.

~~~~

Easing this entry into a conclusion, I note a few variables that could deter the thesis found in these charts. First, a Mitt Romney presidency would logically hinder Gold, because the Romney/Ryan ticket has taken a hawkish tone toward monetary policy. Strong dollar policy and anti-QE rhetoric are bearish developments for Gold–and I recently resurrected my short term & long term USD/DXY bull call.

I trust the charts though, because correlations are not a trustworthy guide. If the technical pattern fails, a new one will emerge, and I’ll adapt. The Gold chart could fail; Cup & Handles usually occur in an uptrend, and that’s not the case here today. Ultimately, the technicals illustrate the market’s psychology. Particularly in the Gold market, that’s the biggest variable… cue Jack Schwager:

“Gold is the only commodity where the amount of supply is literally about 100x as much as the amount physically used in any year… There is never any shortage of gold, so gold’s value is entirely dependent on psychology or those fundamentals that drive psychology… I would base any price expectation entirely on such factors as inflation and the value of the dollar, because those are the factors that drive psychology.”

–Romeo

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