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Well, give credit where credit is due. Ted Butler, Mike Bolser, Dave Morgan and Adam Hamilton called this one
right on the money. Each used different methods to come to exactly the same
conclusion. Both Ted and Dave have never missed yet with the Commitment of
Traders Report. Mike Bolser used the DIVG (dollar
index value of gold) and other proprietary moving averages to come to his
decision…and Adam Hamilton used non-confirmation of the HUI to predict
the sell-off in the precious metals that we had last week.
So that leaves us…. .where exactly?
Let’s look at three charts…. courtesy of www.stockcharts.com. The first is
the HUI. This is the three year chart and lays out most of the up move in
gold since the bottom in 2001.
Note the RSI (Relative Strength Indicator) graph at the top. During
this correction it came down from about 75…and at the bottom of the
move it kissed the bottom line at exactly 30. At that very same moment, the
HUI touched its 200 day moving average. If you examine the bottom of every
HUI down move for the last three years, you will note that the bottom is
basically in when the RSI hits 30.
Of course there has to be an exception to every rule…and
there’s obviously one here. That’s the monstrous hammering that
the dealers handed out starting on April Fools Day and ending during the
first week of May…getting down to under 20. We all remember it well.
It’s pretty easy to glean from this that if you select your buy
points the moment that the RSI indicator touches or violates 30 on the RSI
scale; it’s time to load the boat. However, using the top of RSI
graphs, picking the tops isn’t anywhere near as easy, especially when
gold is in a bull market run like it had starting in the middle of March 2003
and ending during the first week of December.
To pick absolute market tops, one has to refer to the MACD (Moving
Average Convergence/Divergence) graph at the bottom of the chart. On this
three year HUI chart there are two unmistakable tops that stand out like
beacons. June 2002 and December 2004. Both times the MACD line broke
(slightly) through +10 on the scale. Those were ‘sell everything you
own’ signals extraordinaire!
You will also note that most market bottoms occur when the MACD
touches or slightly violates the -5 line, with the obvious exception being
the ‘Royal Beating’ starting April first.
On this HUI graph, it looks like this correction in gold shares has
just about run its course. The MACD point of about +8 during October was only
an interim high, as it did not violate the +10 mark. On this graph you will
note that the MACD is reported as -4.89. Yesterday…14 December…it
violated the -5 point on the graph by just a hair.
Now let’s take a look at the three year chart for gold itself.
For the most part, the RSI indicates the bottoms in the gold price
pretty well, and the MACD line indicates the big bottoms and some of the big
tops, but is weak when there is a long bull run…just like the RSI and
MACD for the HUI. But when the MACD is +6 or higher, the rising gold price is
definitely on borrowed time, and a sell point should be looked for…just
as it’s a good time to buy when the graph gets below -3.5.
But the really interesting part of the gold price is what happened
since the last top…starting in the first couple of days of December. The
dealer engineered sell-off ran into a brick wall at the 50 day moving
average. The gold (and silver) bulls mentioned in the opening sentence are
somewhat cautious as to whether this gold price correction is over…and
I don’t disagree. The dealers desperately want the specs to cough up
their longs so they (the dealers) can cover their shorts. Mike Bolser’s proprietary work in this area
indicates that this rise in the gold price and the HUI is just
temporary…and we gold bugs are just being set up by the Fed for the
next move down. He could be right, but the jury is still out on that one.
If they (the dealers) can still engineer it, then a price that would
force the specs to puke up all their longs would be somewhere under
$410…which would be right on the TA up-sloping straight line that
started in 2001. Whether the dealers can do it, is also an open question
right now.
However, if the dealers can’t do it, because…in the face
of a falling US$...the physical market is eating them alive, then we’re
going to see some real action in the gold pits in the not too distant future.
The problem I personally have with a gold price of under $410 is that
in order to reach that price, it would in turn violate the already positive
RSI and MACD graphs for both the HUI and silver (which I’ll get to in a
moment).
A comment by a reader over at Jim Sinclair’s web site tonight
asked exactly that question, but in a slightly different way. Let me quote
it…
Mr. Sinclair:
For those of us
(I believe I'm speaking for many of your readers) who were caught in the
lengthy correction in the shares earlier this year, we're looking to avoid a
replay. Short-term indicators are oversold and turning back up. However, we
have long-term negative crossovers in many of the gold indices.
The question is
determining whether this will be a snapback technical rally of modest size,
to be followed by another leg down, or an early return to the uptrend. Is it
safe to say that a USDX close below .8190 would justify holding for a run at
a new POG high? If not, is there something else that might tip us?
Thank you.
Golden Comet
Frank
Jim Sinclair’s answer was
very long and convoluted. If you wish to read it, it will be posted somewhere
at www.jsmineset.com
under today’s date…15 December 2004.
Now let’s look at
silver.
Here’s the three-year chart:
As Ted Butler said in his weekly commentary issued the other day…“It
is interesting that in the sell-off so far, all of silver’s moving
averages have been violated; while in gold, the big 50, 100, and 200 day
moving averages have not been violated (yet). It is the violation of the
moving averages that causes the tech funds to act. Therefore, it would appear
that silver is more advanced in the liquidation process, at least in terms of
contracts to be possibly liquidated, if not also in price. If gold does
violate its big moving averages, heavy tech fund selling should be expected.”
The monster sell-off
starting on April first, took nearly five weeks to run the silver price down
from $8.50 to $5.55 the ounce. During the latest correction this month, the
dealers got the price from $8.05 to $6.68 in four days! What’s
the rush this time?
But like gold, the top at
$8.05 came when the RSI just violated the 70 point, and ended when it just
touched the 30 mark. You will note that the RSI barely broke below 30 when
the silver price got smashed last April. Using the MACD line, it’s more
than obvious that a price top was in, as the MACD was in the 35 range, and at
the bottom of that price ‘correction’ is was around
-45…probably an historic low.
For this month’s
smack-down the MACD is only at -15…and this time the price was smacked
down even faster…and the MACD trace has already started to turn up as
the silver price recovers.
So here
is the quandary. Silver has already technically corrected back to the point
where it is what Ted Butler calls “dimes to the down side and dollars to the upside.” The
Commitment of Traders will tell us a lot on Friday. The HUI is also in the
same boat. Both of these charts are very positive.
That only leaves the gold price
hanging in mid air, slightly above its 50 day moving average.
I’ve never seen gold and
silver correct at different rates. They pretty well peak together and trough
together. There has been the odd exception, but nothing as glaring as this. It
is sooooo obvious!!! No wonder everyone is nervous
about it.
One other thing that stands out
like a sore thumb on both the gold and silver price charts…the silver
price is a wonderful looking parabola starting at the left edge of the three
year chart…and gold is starting to look parabolic starting with the end
of the correction in May of this year. A correction in the gold price back to
under $410 would put an end to that. But unless the dealers can force the
tech funds to sell out to them, that parabola is not going to change one
iota.
In the long run, it really
doesn’t make any difference if the bears or the bulls are right on this
one. But there is one thing for sure…if I’m reading these charts
right…the next major move in the precious metals price is going to be a
big one…really big…and it will materialize quickly, and Bill
Murphy’s ‘limit up’ six dollar rule will be history
somewhere along the way. This current top that’s been engineered by the
dealers is an interim top in both the gold and silver price. And it’s
my opinion that we won’t be in an oversold position again until gold is
north of $500 and silver is in the ten dollar range.
Back in late November, I took a
bunch of money off the table. I bought back into the silver market on
December ninth. I’d like to think that that was the bottom. Right now
silver is at $6.90 and gold is back over $440. In the face of what’s
happening out in the world, I want to be 100% invested now that this
correction is over (hopefully).
I’m never a happy trader, as
I’m a ‘buy and hold’ kind of guy. I’m keenly aware of
what Doug Casey had to say about traders earlier this year… “The skilled speculator and the experienced investor,
however, take a longer view. The key is to identify major trends in the
markets, understand why they're occurring, and stay with them for as long as
possible. Jitterbugs that worry about daily movements will eat their capital
up with commissions, fees, taxes, and bid/ask spreads in the process of
whipsawing their accounts to death with the vagaries of their own psychology.”
Knowing myself as I do, I could certainly fall into
that category if I wasn’t careful. Even my dalliance into the sphere of
buying and selling during the last month was hard on the nerves, as now that
I’m back to being (virtually) fully invested, the gold price move
wasn’t significant enough to generate the profits I was expecting.
The only person who was
happy with all my trading, was my broker. Now he, along with his entire
family, will have a good Christmas this year. But at least he was kind enough
to thank me before I hung up…you’re welcome William!!!
So unless the Fed can generate a
strong rally in the US$ above 82.5 cents over the next couple of weeks, I
wouldn’t want to be either out of the market or short the precious
metals (or their shares). Because, by the end of April, we will see an
entirely different gold and silver landscape than we have now.
I’m glad that my little
three-week foray with some of my money off the table is over. During this
next move up, I’m going to pretend that I’m Jesse Livermore. I’m
going to “be right, and sit tight.”
And if I get the urge to trade something again, I’ll just think of what
Doug Casey had to say…then I’ll take a pill and lie down until
the feeling goes away. Right now I’m just prepared to live with the
fact that over the next couple of weeks I could be wrong. I’m more than
happy to agree with Bob Bishop in one of his latest commentaries where he
said “My view is that sell-off in gold would not likely
exceed $430 for any length of time, principally because the dollar’s
problems are so relatively large and that dead cat, intervention-inspired
bounce is likely to be about the best the dollar can muster in light of its
over-owned and still over-valued status.” Bob’s
entire article is hyperlinked here.
Having ridden this precious metals
bull market for the last four years, I can tell you that if one tries to get
too cute about jumping in and out of one’s stock positions, you could
find yourself chasing this market in short order.
Most market participants in this
arena that are currently sitting on the sidelines will find that out during
the next thirty days or sooner.
Ed Steer
Director
Gold Anti-Trust
Action Committee
www.GATA.org
GATA is a civil rights and educational organization based in the United States and tax-exempt under the U.S.
Internal Revenue Code. Its e-mail dispatches are free, and you can subscribe
at www.GATA.org. GATA is
grateful for financial contributions, which are federally tax-deductible in
the United States.
 
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