Best of the Week
Most Popular
1. US Housing Market Real Estate Crash The Next Shoe To Drop – Part II - Chris_Vermeulen
2.The Coronavirus Greatest Economic Depression in History? - Nadeem_Walayat
3.US Real Estate Housing Market Crash Is The Next Shoe To Drop - Chris_Vermeulen
4.Coronavirus Stock Market Trend Implications and AI Mega-trend Stocks Buying Levels - Nadeem_Walayat
5. Are Coronavirus Death Statistics Exaggerated? Worse than Seasonal Flu or Not?- Nadeem_Walayat
6.Coronavirus Stock Market Trend Implications, Global Recession and AI Stocks Buying Levels - Nadeem_Walayat
7.US Fourth Turning Accelerating Towards Debt Climax - James_Quinn
8.Dow Stock Market Trend Analysis and Forecast - Nadeem_Walayat
9.Britain's FAKE Coronavirus Death Statistics Exposed - Nadeem_Walayat
10.Commodity Markets Crash Catastrophe Charts - Rambus_Chartology
Last 7 days
Stock Markets Failing to Give Another AI Mega-trend Buying Opportunity - 6th Jun 20
Is the Stock Bulls' Cup Half-Full or Half-Empty? - 6th Jun 20
Is America Headed for a Post-Apocalyptic Currency Collapse? - 6th Jun 20
Potential Highs and Lows For Gold In 2020 - 5th Jun 20
Tying Gold Miners and USD Signals for What Comes Next - 5th Jun 20
Rigged Markets - Central Bank Hypnosis - 5th Jun 20
Gold’s role in the Greater Depression of 2020 - 5th Jun 20
UK Coronavirus Catastrophe Trend Analysis Video - 5th Jun 20
Why Land Rover Discovery Sport SAT NAV is Crap, Use Google Maps Instead - 5th Jun 20
Stock Market Election Year Cycles – What to Expect? - 4th Jun 20
Why Solar Stocks Are Rallying Against All Odds - 4th Jun 20
East Asia Will Be a Post-Pandemic Success - 4th Jun 20
Comparing Bitcoin to Other Market Sectors – Risk vs. Value - 4th Jun 20
Covid, Debt and Precious Metals - 3rd Jun 20
Gold-Silver Ratio And Correlation - 3rd Jun 20
The Corona Riots Begin, US Covid-19 Catastrophe Trend Analysis - 3rd Jun 20 -
Stock Market Short-term Top? - 3rd Jun 20
Deflation: Why the "Japanification" of the U.S. Looms Large - 3rd Jun 20
US Stock Market Sets Up Technical Patterns – Pay Attention - 3rd Jun 20
UK Corona Catastrophe Trend Analysis - 2nd Jun 20
US Real Estate Stats Show Big Wave Of Refinancing Is Coming - 2nd Jun 20
Let’s Make Sure This Crisis Doesn’t Go to Waste - 2nd Jun 20
Silver and Gold: Balancing More Than 100 Years Of Debt Abuse - 2nd Jun 20
The importance of effective website design in a business marketing strategy - 2nd Jun 20
AI Mega-trend Tech Stocks Buying Levels Q2 2020 - 1st Jun 20
M2 Velocity Collapses – Could A Bottom In Capital Velocity Be Setting Up? - 1st Jun 20
The Inflation–Deflation Conundrum - 1st Jun 20
AMD 3900XT, 3800XT, 3600XT Refresh Means Zen 3 4000 AMD CPU's Delayed for 5nm Until 2021? - 1st Jun 20
Why Multi-Asset Brokers Like are the Future of Trading - 1st Jun 20
Will Fed‘s Cap On Interest Rates Trigger Gold’s Rally? - 30th May
Is Stock Market Setting Up for a Blow-Off Top? - 29th May 20
Strong Signs In The Mobile Gaming Market - 29th May 20
Last Clap for NHS and Carers, Sheffield UK - 29th May 20

Market Oracle FREE Newsletter


Get Ready to Buy Gold

Commodities / Gold & Silver 2009 Aug 13, 2009 - 03:34 AM GMT

By: MoneyWeek


Best Financial Markets Analysis ArticleDominic Frisby writes: Regular readers will know I have been looking for an 'entry point', a good time to buy gold sometime in the summer. Yet, except for a momentary blip a fortnight ago, there has been no sell-off of any great note. Gold continues to range-trade between about $970 per ounce on the upside and $910 on the down.

But as I suggested on Monday - Today's biggest contrarian bet - the US dollar - it seems a rally of sorts is starting in the US dollar, so we should get a corresponding drop in gold priced in dollars.

And if stock markets turn down from here, we can expect gold and gold shares to follow, at least at first.
If you don't already own some gold or gold shares, I really would take advantage of any dips you might see in the coming few weeks, because, longer-term, a number of indicators are suggesting gold could be getting ready for a big move. Let me explain...
This first chart shows the gold price this year and, beneath, the seasonal pattern of gold over the last 37 years. (Thanks to Nick Laird of for the latter). Seasonal trading strategies don't always work, but this year gold has followed its annual pattern. The black arrows show the year's major highs and the red arrows the major lows. Except for January, all have come pretty much on cue. Quite amazing.

If the seasonal pattern continues to play out, we can expect significantly higher prices by year-end, with an October sell-off en route.

Is $1000 the new $700?

Many will remember the big move in gold from about $430 to $730 an ounce between August 2005 and May 2006. There then followed a frustrating sixteen-month period, which began with a violent correction that took gold back to the point it had broken out from. Gold then edged its way up, making higher lows and repeatedly trying and failing to break through $700. It made four attempts and couldn't get past $680. The fourth attempt was the least convincing of all.
Then, suddenly, in September 2007, it burst through on a dramatic, multi-month up-move that took it to $1,030 by the following March.

Enjoying this article? Sign up for our free daily email, Money Morning, to receive intelligent investment advice every weekday. Sign up to Money Morning.

The post-big-move corrective pattern then repeated itself. First we had the dramatic correction where gold made its way back to its breakout points. The first was at $850, then, in last year's stock market crash, it fell to its initial break-out point at $680. Since then it has edged higher, making consistently higher lows.

But it hasn't broken out to new highs. In fact, it has re-tested $1,000 some four times now – just as it did at $700 - and last week's rally, which couldn't even pass $970, was the least convincing of all.

If this pattern continues it means a major, multi-month move - which will propel the price beyond $1,000 - is coming. You want to make sure you've booked your seat on the rocket, either though gold or an associated share such as an exchange traded fund (ETFS physical gold ETF (LSE:PHGP) for example). Yes, somebody might get a seat a little bit cheaper, but better this than not having a seat at all.

Many technical analysts look for so-called "fractal patterns" – basically these are recurring patterns in stock charts - which they then use to predict future price movements. The technique doesn't always work, but it has a surprising success rate. The advantage is you know pretty quickly when you are wrong, so you can place tight 'stop losses' to minimize your risk of losing money.

The share price pattern that points to a gold surge

Ross Clark of Institutional Advisers is for me one of the best technical analysts around. He notes that the pattern gold has been making as it consolidates in the 16 months since its high of spring 2008, and repeatedly fails to break through $1,000, is remarkably similar to the US Dow Jones Industrial Average – Wall Street's bellwether share index - in the 16 years between 1966 and 1982, as it repeatedly failed to break through $1000.

The Dow eventually went to 14,000. I am not saying gold will go to $14,000, or anything like, and if it's to go anywhere significant the breakout point must hold on any subsequent retest, just as the Dow did. But don't underestimate how high the yellow metal and its miners could rise.

For now, be careful

There are three things that make me very cautious in the short term. The first is that a continued rally in the US dollar will knock gold. The second is the widespread bullishness amongst commentators. We need some kind of a sucker punch. And the third is the positioning of professional traders on the Comex futures exchange. Large traders have a sizeable 'long' position while commercial traders have a similarly sized 'short' stance, i.e. they have sold gold they don't own. Together, this isn't usually indicative of a gold price low, as I explained last week in Money Morning: Gold looks ripe for a fall – so get ready to buy in.

The dollar gold price could easily be taken down $100 from here, so be careful. But also be careful not to miss out on gold's next big move.

By Dominic Frisby for Money Morning , the free daily investment email from MoneyWeek magazine .

© 2009 Copyright Money Week - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Money Week Archive

© 2005-2019 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules