Best of the Week
Most Popular
1. Stock Markets and the History Chart of the End of the World (With Presidential Cycles) - 28th Aug 20
2.Google, Apple, Amazon, Facebook... AI Tech Stocks Buying Levels and Valuations Q3 2020 - 31st Aug 20
3.The Inflation Mega-trend is Going Hyper! - 11th Sep 20
4.Is this the End of Capitalism? - 13th Sep 20
5.What's Driving Gold, Silver and What's Next? - 3rd Sep 20
6.QE4EVER! - 9th Sep 20
7.Gold Price Trend Forecast Analysis - Part1 - 7th Sep 20
8.The Fed May “Cause” The Next Stock Market Crash - 3rd Sep 20
9.Bitcoin Price Crash - You Will be Suprised What Happens Next - 7th Sep 20
10.NVIDIA Stock Price Soars on RTX 3000 Cornering the GPU Market for next 2 years! - 3rd Sep 20
Last 7 days
Covid and Democrat Blue Wave Beats Gold - 15th Jan 21
On Regime Change, Reputations, the Markets, and Gold and Silver - 15th Jan 21
US Coronavirus Pandemic Final Catastrophe 2021 - 15th Jan 21
The World’s Next Great Onshore Oil Discovery Could Be Here - 15th Jan 21
UK Coronavirus Final Pandemic Catastrophe 2021 - 14th Jan 21
Here's Why Blind Contrarianism Investing Failed in 2020 - 14th Jan 21
US Yield Curve Relentlessly Steepens, Whilst Gold Price Builds a Handle - 14th Jan 21
NEW UK MOT Extensions or has my Car Plate Been Cloned? - 14th Jan 21
How to Save Money While Decorating Your First House - 14th Jan 21
Car Number Plate Cloned Detective Work - PY16 JXV - 14th Jan 21
Big Oil Missed This, Now It Could Be Worth Billions - 14th Jan 21
Are you a Forex trader who needs a bank account? We have the solution! - 14th Jan 21
Finetero Review – Accurate and Efficient Stock Trading Services? - 14th Jan 21
Gold Price Big Picture Trend Forecast 2021 - 13th Jan 21
Are Covid Lockdowns Bullish or Bearish for Stocks? FTSE 100 in Focus - 13th Jan 21
CONgress "Insurrection" Is Just the Latest False Flag Event from the Globalists - 13th Jan 21
Reflation Trade Heating Up - 13th Jan 21
The Most Important Oil Find Of The Next Decade Could Be Here - 13th Jan 21
Work From Home £10,000 Office Tour – Workspace + Desk Setup 2021 Top Tips - 12th Jan 21
Collect a Bitcoin Dividend Without Owning the King of Cryptos - 12th Jan 21
The BAN Hotlist trade setups show incredible success at the start of 2021, learn how you can too! - 12th Jan 21
Stocks, Bitcoin, Gold – How Much Are They Worth? - 12th Jan 21
SPX Short-term Top Imminent - 12th Jan 21
Is This The Most Exciting Oil Play Of 2021? - 12th Jan 21
Why 2021 Will Be the Year Self-Driving Cars Go Mainstream - 11th Jan 21
Gold Began 2021 With a Bang, Only to Plunge - 11th Jan 21
How to Test Your GPU Temperatures - Running Too Hot - GTX 1650 - Overclockers UK - 11th Jan 21
Life Lesson - The Early Bird Catches the Worm - 11th Jan 21
Precious Metals rally early in 2021 - 11th Jan 21
The Most Exciting Oil Stock For 2021 - 11th Jan 21
Financial Market Forecasts 2021: Navigation in Uncharted Waters - 10th Jan 21
An Urgent Message to All Conservatives, Right-Wingers and Patriots - 10th Jan 21
Despite Signs to the Contrary, Gold Price at or Near Top - 10th Jan 21 -
Ultimate Guide On The 6 Basic Types Of Index Funds - 10th Jan 21
Getting Vaccinated at TESCO - Covid-19 Vaccinations at UK Supermarket Pharmacies and Chemists - 10th Jan 21
Cheers for the 2021 Stock Market and These "Great Expectations" - 9th Jan 21
How to Plan Your Child With Better Education - 9th Jan 21
How To Find The Best Casino - 9th Jan 21
Gold Is Still a Bargain Buy - 8th Jan 20
Gold Price Set to Soar as Hyperinflation Looms - 8th Jan 21
Have Big Dreams? Here's How to Pay for Them - 8th Jan 21
Will the Fed Support Gold Prices in 2021? - 8th Jan 21
Stocks trading strategies for beginners - 8th Jan 21
Who is Buying and Selling Stocks in 2021 - 8th Jan 21
Clap for NHS Heroes 2021 as Incompetent Government Loses Control of Virus Again! - 8th Jan 21
Ultimate Gaming and Home Working PC System Build 2021 - 5950X, RTX 3080, Asus MB - Scan Computers UK - 7th Jan 21
Inflation the bug-bear looking forward through 2021 - 7th Jan 21
ESG ETF Investing Flows Drive Clean Energy to Fresh Highs - 7th Jan 21
5 Financial Market Surprises in 2021 - 7th Jan 21
Time to ‘Reset’ Your Investment Portfolio in 2021? - 7th Jan 21
Bitcoin Price Collapses almost 20% at the start 2021 - 7th Jan 21
Fed Taper Nervous Breakdown - 6th Jan 21
What Will the U.S. Dollar Ring in for 2021? - 6th Jan 21
Stock market frenzy- Ride the bandwagon but be sure to take along some gold coins - 6th Jan 21
Overclockers UK Custom Build Gaming System Review Heat Test and Final Conclusion - 6th Jan 21
Precious Metals Resuming Bull Market, Gold, Silver, GDX Trend Forecasts 2021 - 5th Jan 21
Trump’s Iran-COVID-Gate Anniversary  - 5th Jan 21
2021 May Be A Good Year For The Cannabis / Marijuana Sector - 5th Jan 21
Stock Market Approaching an Important Target - 5th Jan 21
Consumer Prices Are Not Reflecting Higher Inflation; Neither Is The CRB - 5th Jan 21
NEW UK Coronavirus PANIC FULL Lockdown Imminent, All Schools to Close! GCSE Exams Cancelled! - 4th Jan 21
The Year the World Fell Down the Rabbit Hole - 4th Jan 21
A Year Like No Other for Precious Metals… and Everything Else - 4th Jan 21
The Stocks Bull Market is Only Half Completed - 4th Jan 21
An In- Depth Look At Gold Price Trend - 4th Jan 21
Building America Back After a Dark Covid Winter - 4th Jan 21
America's Dark Covid Winter Ahead - 4th Jan 21
Buy a Landrover Discovery Sport in 2021? 3 Year Driving Review - 3rd Jan 21
Stock Market Major Peak in Early April 2021 - 3rd Jan 21
Travel and Holidays 2021 - Flight Knight Cabin Bag Review - 3rd Jan 21
�� Happy New Year 2021 Fireworks and Drone Light Show from London and Sheffied - BBC�� - 2nd Jan 2
The Next IMMINENT Global Catastrophe After Coronavirus - 1st Jan 21

Market Oracle FREE Newsletter

FIRST ACCESS to Nadeem Walayat’s Analysis and Trend Forecasts

Gold and the Science Of Market Speculation

Commodities / Gold and Silver 2010 Jan 18, 2010 - 12:00 AM GMT

By: Howard_Katz

Commodities

Best Financial Markets Analysis ArticleThe gold market appears to be just a little past a crucial turning point.  At the time of the Dec. 3, 2009 top, my expectation was for a short term decline to $1,000.  It appears that this was too pessimistic, and the evidence now says that gold had a short term bottom at $1,075 on Dec. 22, 2009.


This evidence is good enough to play and the One-handed Economist is back in a bullish position with regard to gold and gold stocks.  We will soon know if this is correct because gold will rise and break above the Dec. 3 peak of $1,229.

The importance of this event is that, on the longer term chart, it leaves a sizable gap between the (Sept.) break out point ($1,000) and the (Dec. 22) pullback ($1,075).  If this gap holds up (and right now I think it will), then it has enormous technical significance.

In a word, gold is going to the moon.

Below is the long term chart on gold, of which the above chart is merely the tip end.  It is one of the most basic rules of technical analysis that, when an economic good has a pattern of higher highs and higher lows, the good is in an uptrend  This was the discovery of Charles Dow and was the basis for Dow Theory.  Dow applied his theory to the stock market and required that uptrends exist in both his Industrials and Rails averages to predict an uptrend in the stock market as a whole.  (It is a mystery among most people today why Dow chose Rails as a special industry of equal importance with Industrials, which consist of many industries.  The argument was later made that industrials produce goods and rails carry them to market.  However, when passengers began to be carried by airlines rather than railroads, nobody thought that the airlines were a special group which had to be identified separately.  Actually, Rails and Industrials were identified as the two important groups of stocks because in the late 19th century almost all companies big enough to issue stock were railroads.  They were the dominant industry of the period.  Indeed, Charles Dow was constructing stock indexes as far back as 1885, and these early indexes were 100% railroads.  In 1885, the non-railroad industries were just not important enough to matter.)

When an important breakout occurs, as happened with gold at the end of September, there is a powerful tendency for the good to advance a distance and then pull back to the breakout point.  Most such pullbacks will come back to the breakout point fairly precisely.  But there are two exceptions.  In one case, the good will return to the breakout point and go some distance into it.  This shows long term weakness.  The good must draw on some of its support in order to make the turn up.  In the normal pullback, the good only draws on a little of its support.  But with the second exception, the good does not need to use any support at all.  In the case of gold here in 2010, the support is at $1,000.  If gold has made its turn at $1,075, then it has not yet met its support, and if it can now move up without the aid of that support, then the long term uptrend must be much stronger (than the other two cases).

This analysis of support is an example of the science of market speculation.  Remember, a speculator is one who seeks to make a profit by buying low and selling high (not necessarily in that order).  This is as distinct from an investor, who merely wants to put his money to work and does not try to predict the market.  The investor in stocks wants to make a larger return on capital than he could have made by putting his money into the savings bank or T-bonds.  But he doesn’t know what stocks are going to do and doesn’t care to make the effort to find out.  Therefore, we gold bugs are speculators, not investors.  Gold, at this corrupt stage of history, does not yield interest, and therefore we must make our money in gold by speculation, not investing.

And the key principle of speculation is to know what the other fellow is going to do (before he does it).  The idea that one can make a market go up by buying it (or down by selling it) is an illusion.  It goes up on the immediate buying.  But then it settles back.  Pretty soon you are loaded up with a big position.  You say to your broker, “sell.”  And he replies “to whom?”  Bunker Hunt found that out the hard way in March 1980.  Rather the successful speculator has planned in advance and knows that, after he has accumulated his position, there will be people anxious to buy it from him.  (The first speculator known to history is the famous philosopher, Thales of Miletus, who predicted, from his study of the weather, that the following year would be a good one for olives.  He speculated in olive presses and made a big profit.)  In 1970, you could get very few people to buy gold stocks with the metal at $35.  But in 1980, they were screaming to buy with the metal at $875.  Successful gold speculators of the 1970s were able to correctly predict this behavior

But if we are to predict the behavior of other people, then we have to understand how they think.  It is a big flaw in modern day technical analysis that it does not examine what people are thinking or how they are going to behave.  It simply says, “We don’t know why it works, but it works.”  Well, (correct) principles of technical analysis do work.  But that is not enough.  To correctly predict future behavior, in any field of human endeavor, we must understand the cause and effect relations which govern the particular subject.  This is what makes an area of study scientific.  The scientist is always searching for cause and effect.

The big error that most people make in the markets is that they accept an idea from another philosopher, Thomas Aquinas.  Aquinas was not as smart as Thales.  He taught that every good had a fair price.  The Catholic Church spread this idea over much of the world.  People who believe in the fair price theory of Aquinas take as the fair price the price they are used to.  When a good trades near the same price for a long time, these people come to think that it is the fair price.  An example of this is gold from March 2008 to Sept. 2009.  For much of this period, it traded at or not too far from $1,000.  By late Sept. ’09, a great many people had come to believe that $1,000 was a fair price for gold.  (The same thing happened when gold traded at $35/oz between 1935 and 1968.)  Then when gold moved above its “fair” price, these people come in to sell.

But wait a minute?  The good is going up.  Yet this large number of fair-price people are selling.  Who is buying?  There must be some more powerful force which is causing the good to rise.  Furthermore, the fair-price people always lose.  This is because, as they get used to the new, higher price, they adjust their concept of the fair price upward.  (In the present case, we can be pretty sure that the buying is caused by the up forces of the commodity pendulum and the new, trillion dollar deficits.  But even if we do not know what the buying is from, we do know that it exists and is virtually certain to win over the selling.)  The gap which exists in gold between the Dec. 22 bottom of $1,075 and the breakout point of late Sept. of $1,000 – if it remains open – is a giant technical fact proving that the up forces are stronger than the down forces.  It is a window on the future.

The One-handed Economist is my fortnightly (every 2 weeks) newsletter commenting on gold and the other financial markets.  The cost is $300 per year.  I have spelled out my position over the past few weeks.  Now the market will tell its story.  I should note that a subscription does not include personal consultation.  This would take up too much time and be too costly.  I do however appreciate general questions.  If there are enough questions on a topic, I may decide to comment in the newsletter.  If you are interesting in subscribing, you may go to my website, www.thegoldspeculator.com, or you may subscribe by ordinary mail by sending $300 to The One-handed Economist, 614 Nashua St. #122, Milford, N.H. 03055.  (Include your e-mail address if you want the more rapid e-mail service.)

NOTE I am suspending my blog (which comments on political and social events).for lack of time.  However, I have written a book on the loss of freedom in our day and a strategy for winning it back.  This book is called The Wolf in Sheep’s Clothing, and I am hopeful that it will be ready for publication about mid-year.

The book starts out from the fact that western man had an approximate 500 year period of increasing freedom (from the Peasant’s Revolt in England in 1381 to the end of the 19th century)  But this was followed by a counter trend away from freedom (from about 1900 to the present)  This counter trend was a deliberate strategy by the evil forces which must be understood to be successfully reversed.  More to come.

© 2010 Copyright Howard S. Katz - 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.


© 2005-2019 http://www.MarketOracle.co.uk - 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