Is Gold On Its Way To The 1500s?

Gold went down this past week. Sort of. It settled Friday at 1396.2. Which means that having settled the prior week at 1396.3, Gold net of the five trading days lost one trading "pip", (10¢).

As herein was written one week ago "...'twould be normal to first expect a modicum of profit taking by short- and near-term traders...", a "modicum" of course being nothing more than a fraction, speck, or dare we say, smidge. But was that really the best they could do?

Clearly the case has been established of the 1300s being firmly supportive for Gold. However, support is created for a reason: to be tested toward then providing the impetus and encouragement to trade up into higher levels, i.e. the 1500s. In between of course lies the somewhat "hot knife through butter" zone of the 1400s at which we'll be taking an animated look later in this missive. To be sure, Gold first looks poised to retrench into the 1300s, which per the trading profile as we'll see contains support spanning from Base Camp 1377 down into the 1360s, before working back up into the 1400s, and then onward toward reclaiming the remainder of that brutal 124-point loss that 'twas endured on Tax Day (15 April). So this all leads to nicely to setting up Gold's finding itself north of 1500 as soon as September's end. And 'tis not as an aggressive a call as one might think. Let's get into it beginning with Gold's weekly bars.

Note in the chart below that the new parabolic Long trend per the three rightmost blue dots remains firmly in tact and that the price to flip such trend to Short is well down there at 1203. Having herein written-off the 1200s two weeks ago therefore suggests Gold shall be protected by that continued rising pattern of blue dots for a good many weeks to come:

Nonetheless, per the closing price "nibs" on the bars, this most recent week was the first one since that ending 05 July (eight weeks ago) wherein Gold settled closer to its low than to its high. Hence, the further retrenchment into those supportive 1300s that we're anticipating in the new week. And the primary hint thereto may be coming from the white metal herself, Sister Silver.

Here we've Silver's daily bars for the past three months. The baby blue dots thereon represent the 21-day linear regression trend's consistency measure as updated each day. And as you can see, Silver's "Baby Blues" have just begun to roll over a bit, (albeit those for Gold per our Market Trends page have not quite yet so done):

Of course, we oft refer to Sister Silver (gender aside) as the Gemini Metal as she can appear adorned in precious metal pinstripes or in an industrial metal jacket, (i.e. she's a bit of a Jekyll & Hyde complex). And although she's had one heckova pinstripes run of late alongside her date (Gold), the industrial pull of a declining S&P has arguably caused, at least for the moment, a change in wardrobe. Whether Gold retreats somewhat in sympathy with Silver or otherwise, the negative directional trading correlation that the yellow metal now has with the S&P is as stark as ever. Here are their respective percentage tracks for the last month (21 trading days):

'Tis a fairly mirror image, that. Whilst expective of Gold's reining itself in a bit -- and in acknowledging that the S&P is technically textbook oversold -- once we sort through the next week or two, I'm sensing that Gold shall continue higher and the S&P lower.

Why so negative on the S&P? In the wee hours of last Monday morning, Bloomy Radio put it very succinctly: "Stock prices have out-paced the rate of earnings growth by the largest margin in over 14 years". Thank goodness for Quantitative Easing. Where would be without QE? (Recall "I'm sittin' on da bid at S&P 880"?)

Why so positive on Gold? Try this headline from the FinTimes, also from last Monday, which says it all: "US stocks higher after weak data; Durable goods orders cast doubt on timing of taper". We've officially gone beyond bass-ackward. Thank goodness for Quantitative Easing. Bad is better than good. (And "taper" still = "QE" = higher Gold).

That, in turn, is why I've little concern about Gold's potentially moving lower in the new week to test support in the aforementioned Base Camp 1377 to 1360s zone. 'Tis that large clump that we next show in the lower portion of the trading profile, the current 1396 level being smack in the center of the whole display:

Recall from a week ago those various MACD (moving average convergence divergence) crossovers we cited, the six-hour Market Rhythm suggesting upside follow-through of at least 32 points within four trading days? Gold indeed traded higher by 38 points (to 1434 on Wednesday) above the prior week's close, before settling the week back down at 1396.

But more importantly, and with respect to now logically expecting some modest near-term retrenchment, consider this on a broader-based perspective: from Gold's closing price of 1200.0 just back on 27 June to Wednesday's close in the past week of 1417.5 was, over those 43 trading days, an increase of 18.125%. At that 43-day rate of increase, Gold would eclipse its All-Time Closing High (of 1900 back on 22 August 2011) this coming 11 December and its absolute All-Time High (of 1923 back on 06 September 2011) on 16 December.

"But, mmb, that's not a sustainable rate..."

Of course 'tis not, Squire. (And your use there of a four-syllable word is impressive). Neither sustainable is the linear regression rate of rise for that same 43-day period, (a bit more benign as it accounts for day-to-day price fluctuations rather than simply a lump percentage change), which projects Gold closing above 1900 next 17 March and above the 1923 All-Time High next 25 March. Not that it can't happen, but if it does, "I'll eat my airedale" --(Gary Busey, 'The Gumball Rally', 1975). For just as there were many-a-repelling battle from late-2011 into late-2012 across The Northern Front (1750-1800), once again one ought expect same upon the Gold Troops re-encountering the Forces of Resistance therein, but this next time victoriously. And yes, we are getting ahead of ourselves, but 'twill eventually all be exciting stuff.

As for the present and in putting a bow on dealing with the 1300s and 1400s we've the following two graphics.

First from our Market Magnets page is this chart of Gold's daily closing prices from June-to-date. The thick line therein is what we refer to as the "Magnet", comprised from weighting price with volume, (as concocted from the data used to create the Market Profiles, above of which we just displayed for Gold). The notion here is that Gold's Price can't get too far afield of its Magnet before being attracted back to it, the oscillator at the foot of the graphic representing the distance of price to magnet:

Constructed independently of our Market Values, (the oft-presented chart of Gold versus its smooth, pearly valuation line), the trader's rule-of-thumb is the same with the Magnets: penetration of the magnet line to the upside is indicative of being Long and vice-versa, (if you dare). And it appears a downside penetration is imminent, supportive of the case for Gold's testing that clump of bars as viewed in its Market Profile.

Second, as promised, we next take an animated view of the 1400s, specifically toward Gold's adeptness in moving back up through such zone into the 1500s. Not that you want to re-live it, however Gold fell from the 1500s into the 1300s in a mere 15 trading -- not days -- but hours! (And you thought that 15 April was already bad enough by its being "Tax Day"). Gold then futzed around into mid-June trying to regain a foothold in the 1400s, but in failing to so do, as we all weathered, eventually found itself sub-1200.

Here's the point: after initially falling so rapidly from the 1500s down through the 1400s into the 1300s, only to then thrash about as a wounded serpent, rather then build any "support becomes resistance" areas in the 1400's, Gold instead created two "congestion" areas as described by the animating red bars in this next graphic:

Strictly from a technical perspective, "congestion" areas can be broken through more readily than stark "resistance" areas, and you can already see by the rightmost few bars, animated as well in red, how easily Gold this past week broke right up through that like area of congestion from back in the late-May to early-June portion of the chart. The idea therefore is: once we get through some expected near-term pullback, Gold's then ensuing upside scoots ought well blast up through both of those congestion areas above as animated, and price shall have thus fully righted itself from the debacle of 15 April.

"So this move up from June is the real deal, eh mmb?"

I certainly think 'tis the case Squire. To bolster such, let's next take a big picture view. The following chart depicts Gold as a function of the Dollar Index on a daily basis from the beginning of 2001 right through yesterday, (3,185 trading days):

The shape of the function's track does resemble that of Gold itself, for 'tis most commonly quoted in Dollars. Yet, this being against that of the Dollar Index, 'tis really Gold priced in Dollars against that basket combining those six currencies (€uro, ¥en, £Sterling, $C, krSwedish and ƒSwiss). And you can already therein see the key: the pale blue line is a critical acclamation of the resistance in 2008 now having become support, as too has become the consolidation inside the 2010 rectangle. Therefore with its most recent lurch upward, Gold is reminding us that it plays no currency favourites, the basket of such bow-wows clearly having once again been left at the post.

So let's look for Gold to bang about in the upper 1300s for a week or so, (Stateside on Monday here we've Labor Day, however Gold essentially trades right through it, opening Sunday evening as usual), and then make a renewed assault on the 1400s toward achieving 1500 by September's end.

Given August having come to a conclusion, we shan't get out the door without our monthly year-over-year view of Gold versus the Gold Bugs Index (HUI), Philly Exchange Precious Metals Index (XAU), Gold miners exchange-traded fund (GDX) and roller-coasterin' Royal Gold (RGLD), that latter equity once again returning to out-pace all the rest to the upside:

Now into Labor Day we go, following which we return to ramped up volatility (per the Market Ranges page) which throughout the September-October stretch can border on the chaotic, the FinMedia leading with pictures such as this:

Avoid ending up like that guy. Just remember the mantra: "... long gold short s&p ... long gold short s&p ... long gold short s&p ..."

And don't forget to don yer autumnal tweeds!

Speaking of which, the National Football League season opens this week. I like the Denver Broncos to win the Super Bowl next February. Besides, they're a cold weather team and given the game is to be played outdoors in New Jersey, it just could be the Snow Bowl.