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There
are almost as many trading systems as there are traders. Every serious
investor develops his or her own system. Probably the most popular is
the reliance upon the 200 day moving average.
In
this essay we concentrate on a novel method of determining whether gold is
overpriced or underpriced. We will use the Kitco traffic counter as an
indicator.
Kitco
traffic can be measured at a number of sites. We will use Alexa.com and
have produced a chart (courtesy Alexa.com) that tracks the number of unique
hits that Kitco receives in a day to arrive at a ranking.
The
following chart oscillates between Kitco being in #1200 spot and #3600
position, among the millions of websites on the internet.
We
have added the numbers from #1 to #7 which happen to correspond with turning
points in gold. These are matched by numbers on the next chart
(courtesy Stockcharts.com), featuring gold bullion. By scrolling back
and forth between the two charts one can easily see the correlation.
It is
amazing how close to each other these turning points are. Although we
have no guarantee that gold will not pull back between now and Labor Day, we
draw the conclusion that according to the Kitco traffic chart we are a lot
closer to a buying point than a selling point.
“The
American Republic will endure until the day Congress discovers that it can
bribe the public with the public's money”.
……ALEXIS De TOCQUEVILLE
Next let us add a ‘filter’ to narrow the buying opportunities
down a bit more. We do this by adding in the 200 day moving
average. Traders use filters to increase the chances of being
‘right’ about taking on risk. The charts in the remainder
of this report are courtesy Stockcharts.com
The
number 3, 5 and 7 correspond with the same numbers in the Kitco traffic chart
and represent times when the price of gold was within 3% of the 200 day
moving average. If you look in the Kitco archives you will see that I
wrote articles right around those numbers suggesting that these were excellent
times to buy gold. By following my own advice I ended up recently being
90% invested in precious metals and mentioned that fact in my latest
article. (Subscribers to my daily reports are notified when I buy or
sell no later than the next day).
The
green oval indicates that the moving averages are in positive alignment to
each other. The 200 day moving average (red line), has been rising in
strong fashion ever since the 2008 credit crunch. The dashed green
lines tell us that the supporting indicators are positive.
“A
democratic government is the only one in which those who vote for a tax can
escape the obligation to pay it”.
……ALEXIS De TOCQUEVILLE
There
are 10 or less (depending on when you read this article) trading days left
between now and Labor Day. As you can tell from the next chart, price
usually rewards those who buy gold before Labor Day. This reward comes as
what is called the ‘ Christmas Rally.’
The
blue arrows point to the beginning of the Christmas Rally right after Labor
Day. The red arrow points to the exception to the rule (due to the 2008
credit crunch). Even then, those who held on were ahead of the game by
Christmas. The green arrow points to the current buying opportunity,
just before Labor Day 2010. In the event that commercial traders and
bullion banks dump some ‘paper gold’ onto the COMEX towards the
end of August, (in an effort to cover some of their short positions), then it
behooves us to scoop up the bargains, by buying before they do.
“As
a general rule, the most successful man in life is the man who has the best
information.” ……Benjamin
DISRAELI.
Lest
we forget silver, we end with this chart. It shows a bullish ‘cup with
handle’ formation. A breakout at the blue arrow will be very
bullish. The moving averages are in positive alignment (green oval),
and both are rising. According to Investor’s Business Daily the
‘cup with handle’ formation is one of the most reliable chart
patterns available to traders.
Peter Degraaf
Pdegaaf.com
Peter Degraaf is
an on-line stock trader with over 50 years of investing experience. He
sends out a weekly Email to his subscribers. For a 60 day free trial,
contact him at itiswell@cogeco.net, or
visit his website www.pdegraaf.com.
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