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Gold rebuilds the wall of worry

Commodities / Gold and Silver 2011 Nov 09, 2011 - 04:28 AM GMT

By: Clif_Droke

Commodities Best Financial Markets Analysis ArticleGold has come into its own since October as traders continue to hang on every word coming out of Europe. Investors have breathed a collective sign of relief in recent days as Europe’s financial ministers plan to unveil a new rescue fund next month. In the meanwhile Italy and Greece are left to deal with their own debt crises until then. Greece must provide written acceptance of bailout terms before it receives its next 8 billion euro loan installment.


European officials are also consulting with credit ratings agencies over options for increasing the rescue fund’s 440 billion euro guarantee into as much as 1 trillion euros. “In the end,” wrote the Wall Street Cheat Sheet, “many investors believe Europe will resort to money printing to ‘solve’ the sovereign debt crisis.” As we’ve discussed in recent reports, gold therefore has a dual impetus to propel its recovery: fear of the unknown in regard to the euro zone crisis and loose central bank monetary policy in response to the crisis.

Also this week, gold has gotten a short-term shot in the arm courtesy of last week’s failure of broker-dealer MF Global. Trading volumes have declined for gold, crude oil and other commodities as MF Global customers wait for their accounts to be unfrozen so they can resume trading. The Wall Street Journal observed that “Others with access to the trading floor also have stepped back, worried about market distortions that could emerge due to the events of the past week.”

Gold futures trading volume on the Comex, for example, has been under the 200-day moving average every trading day since MF Global's collapse, falling 52% below that level Monday. Crude-oil volume on the New York Mercantile Exchange has been more than 20% lower than its 200-day average for four of the last six trading days. Yet the fact that both crude oil and gold prices have moved higher in the wake of MF Global’s failure and the worries surrounding it speaks volumes about the smart money’s near term outlook on both commodities. A rising market in the face of worry and uncertainty is typically bullish and describes the market’s famous “wall of worry.”

It’s also a good thing from the standpoint of market sentiment that gold has mostly kept out of the financial headlines of late. The last thing we want to see when we’re long gold is for the yellow metal to be touted on the front cover of financial magazines and newspapers like it was earlier this summer before the interim top was made. The mainstream press has been asleep on the metal since the bottom of the summer decline, which improves gold’s recovery prospects. The fact that the public isn’t heavily participating in this recovery yet, which gives gold some additional upside potential.

In the early stages of a recovery following a corrective decline, the first thing we look for in the way of confirming a bottom is for the gold price to overcome its 15-day moving average and for that trend line to turn up. Gold has established a recovery above the rising 15-day MA since the last part of October. Below is a chart of our gold proxy, the SPDR Gold Trust ETF (GLD), in relation to the dominant immediate-term trend line.



Once gold has established a recovery trend above the rising 15-day MA, the next thing we look for is for price to recover above the next most important series of moving averages, namely the harmonic 30/60/90-day MA series. The 30-day MA reflects short-term external (price) momentum, the 60-day MA reflects the market’s main interim trend, and the 90-day represents the market’s interim bias.

It’s even more important for the sustainability of a market recovery for the gold price to not only overcome the 30/60/90-day MAs, but also for the 30-day MA to turn up and cross above the 60-day and 90-day MAs. As you can see in the following GLD chart, this important moving average crossover is on the verge of happening.



The fact that the 60-day and 90-day moving averages for GLD have already achieved an upward trend is another positive reflection of the positive bias the gold price has achieved in recent weeks as investors’ attention has been turned from the market to the euro zone debt problem. In other words, the recently rebuilt “wall of worry” has improved gold’s near term prospects.

Gold & Gold Stock Trading Simplified

With the long-term bull market in gold and mining stocks in full swing, there exist several fantastic opportunities for capturing profits and maximizing gains in the precious metals arena. Yet a common complaint is that small-to-medium sized traders have a hard time knowing when to buy and when to take profits. It doesn’t matter when so many pundits dispense conflicting advice in the financial media. This amounts to “analysis into paralysis” and results in the typical investor being unable to “pull the trigger” on a trade when the right time comes to buy.

Not surprisingly, many traders and investors are looking for a reliable and easy-to-follow system for participating in the precious metals bull market. They want a system that allows them to enter without guesswork and one that gets them out at the appropriate time and without any undue risks. They also want a system that automatically takes profits at precise points along the way while adjusting the stop loss continuously so as to lock in gains and minimize potential losses from whipsaws.

In my latest book, “Gold & Gold Stock Trading Simplified,” I remove the mystique behind gold and gold stock trading and reveal a completely simple and reliable system that allows the small-to-mid-size trader to profit from both up and down moves in the mining stock market. It’s the same system that I use each day in the Gold & Silver Stock Report – the same system which has consistently generated profits for my subscribers and has kept them on the correct side of the gold and mining stock market for years. You won’t find a more straight forward and easy-to-follow system that actually works than the one explained in “Gold & Gold Stock Trading Simplified.”

The technical trading system revealed in “Gold & Gold Stock Trading Simplified” by itself is worth its weight in gold. Additionally, the book reveals several useful indicators that will increase your chances of scoring big profits in the mining stock sector. You’ll learn when to use reliable leading indicators for predicting when the mining stocks are about o break out. After all, nothing beats being on the right side of a market move before the move gets underway.

The methods revealed in “Gold & Gold Stock Trading Simplified” are the product of several year’s worth of writing, research and real time market trading/testing. It also contains the benefit of my 14 years worth of experience as a professional in the precious metals and PM mining share sector. The trading techniques discussed in the book have been carefully calibrated to match today’s fast moving and volatile market environment. You won’t find a more timely and useful book than this for capturing profits in today’s gold and gold stock market.

The book is now available for sale at: http://www.clifdroke.com/books/trading_simplified.html

Order today to receive your autographed copy and a FREE 1-month trial subscription to the Gold & Silver Stock Report newsletter. Published twice each week, the newsletter uses the method described in this book for making profitable trades among the actively traded gold mining shares.

By Clif Droke
www.clifdroke.com

Clif Droke is the editor of the daily Gold & Silver Stock Report. Published daily since 2002, the report provides forecasts and analysis of the leading gold, silver, uranium and energy stocks from a short-term technical standpoint. He is also the author of numerous books, including 'How to Read Chart Patterns for Greater Profits.' For more information visit www.clifdroke.com


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