|
Gold is
particularly attractive since the Fed has cut interest rates essentially to
zero. This makes gold is more attractive than money in the bank. You
don’t earn interest on either gold or cash, so by holding gold today
you’re not giving up interest, but you also don't give up the potential
of gold’s bull run. The Fed can keep printing cash. It can’t
print gold.
It seems that
gold will need to consolidate before going higher. Once the correction is
done, it’s not out of question that the price of gold will reach
$1,500. I seriously doubt that the recent run up is the final stage of the
bull market. In fact, it seems that there are several more good years.
The new target
level for gold has been set around $1,500. Please take a look at the
long-term gold chart below:
We obtain the
$1,500 target by applying the 1.618 Phi number to previous local tops,
specifically those seen in June of 2008 and June of 2010. This also coincides
with the upper/steeper blue line in the above chart. Since it appears that we
are indeed in the second stage of the bull market for gold, which began in
2008, the steeper rising trend channel seems the better choice for the
long-term analysis at this time.
Before the lower,
less steep line is surpassed, it is likely that gold will first reach a local
top and then go through a quick consolidation. This will most likely result
in a greater strength and increase the odds of a further rally being
sustained.
(Our readers may
notice that we often use Phi number to analyze tops and bottoms. This is not
something random we have pulled out of a hat. The Phi number is also known as
golden number, divine proportion, Latin sectio aurea and so on (read more
about Phi here).
This number is known for its wide use in art, mathematics, observation of
nature and - of course – market analysis. Vladimir
Lefebvre once demonstrated that humans exhibit
positive and negative evaluations of the opinions they hold in a ratio that
approaches Phi, with 61.8% positive and 38.2% negative. Assuming that changes
in markets reflect human opinions, we can use Phi number in our analysis.
Naturally, this goes much deeper than the quick sketch we just presented. The
most important reason for applying the Phi number into market analysis is
simply because it often works.)
To summarize, gold
is likely to reach a local top very soon and then consolidate. It is likely
that it will then rally further, perhaps to $1,500. Several retracement level
factors yield the same conclusions when applied to previous highs and lows we
have seen during the past four years. We also see further validation when
studying gold from the perspective of other world currencies, including the
Japanese yen.
Disclosure: No positions
Przemyslaw Radomski
Editor,
www.sunshineprofits.com
|
