Is the Gold Market in error?

Uncommon Wisdom insists that the Gold Market has to correct before gold can go higher. Why? If we look at the closing prices for gold, we can discern reverse heads and shoulder patterns three times - going back to July/Aug of 2009.The second such pattern showed up in Feb 2010 and the third such pattern is playing out now.

We learn some more as we examine this last correction. The downward spike was as deep as the other times (perhaps a bit deeper) and so was the extent of oversold condition (shown in the top graph). The 200DMA remains pretty steady (i.e. a straight line) indicating the the Gold Market has yet to approach the final, parabolic stage. Can gold drop back and form yet another shoulder on its way up? Possible, but in either case, gold is heading up. Silver has already broken out to new highs and gold will soon follow. Current events and comig events and the QEII will eventually force gold to new highs.

Guidance on gold moves.

Uncommon Wisdom came out with a flash alert this week.

1. For the first time the Analyst was wrong about forecasting a gold move;
2. Gold will re-enter the rally if it closes above 1,453.

My take.

We see a divergence between the DJI and gold prices: the DJI is dropping while gold is going up. Frankly, I have expected this umpteen posts ago, i. e. a divergence between the DJI and the gold price. What this means is twofold: 1. factors that propel ll gold prices are stronger than anticipated by Uncommon Wisdom. In fact he was right about the drop in gold prices, but the drop was not as deep as the equations predicted; 2. the artificial deflation created by the Obama regime to keep inflation down is no longer sufficient to keep inflation down or gold prices from appreciating. The Market expects oil prices to go up and inflation with it. The dollar is dropping, so the Markets are now in sinq. At least, for a while.

Questions about the end of correction.

We are used to silver and sold moving together. Looking at the silver prices in the top graph, we see that silver broke out of its reverse head and shoulder and set new, record prices. When we look at the gold prices, however, (second graph), we see that gold price failed to reach the pre-correction price and in fact slipped yesterday. The gold miner index (GDX, third graph) tells us the same thing.

Uncommon Wisdom (which uses the Cycle Theory to predict moves) tells us that this is not the rally that will take gold over $2000/oz. In fact, they predict that the correction will take gold much lower (1,250 - the second Fibonacci) and Silver to 22.

What we can see is that silver has become a stronger market than gold. Will the softness in the DJI signal a softness in the stocks? Will that take down gold and silver as everyone rushes into cash? The next two weeks should tell.

Ahem - or is it?

And the correction is over.

My last post talked about the possibility that the corretion in gold and silver might be over before March 1. So, I put up the figures for gold and silver as of yesterday, the 20th of February. As of today, gold has reached above 1,400/oz and silver is 33.4. This is the third day in a row that silver hit new highs, but gold is yet to reach 1,420.

We now see the usual end of a reverse head and shoulder: a breakout on the upside. And it is silver that is leading the way.

Happy Investing!

Silver hesitation.

Silver is a precious metal. It is both, of monetary value and an industrial commodity. So, it is not surprising that gold and silver behaved similarly (during the Sep-Dec run-up), yet showed some differences.

Let's see what the graph of silver prices tells us. Please refer to the previous post for the graphic on gold.

Here are the comparisons between gold and silver:
1. The last rally in gold began in the middle of July, whereas the silver rally began at the end of August; 2. the gold rally began to lose steam in October. The up legs of rallies were still the same slope, but the down legs(mini corrections) made the gold price change look toppy, i. e. topping out; 3. silver prices also underwent the mini corrections, but during up legs silver price changes accelerated; 4. silver prices, therefore, did not top out, they kept going up at the same rate; 5. silver and gold prices seems to be in sinc as of Jan 1, 2011 and silver correction may be a day or two ahead of the gold correction.

Both, gold and silver have reached a low on the graph that shows their oversold condition (top graph), yet I hesitate in flatly saying that the correction hit its bottom, even though silver has broken out of its downward trading channel. The MACD for gold and silver has also began to turn upward if slightly.

Why do I hesitate? Corrections in a bull market usually wipe out 1/3 or 2/3 of the last up leg (the Fibonacci numbers). In the case of gold, 1 Fibonacci would be at 1,350 and 2 Fibonaccis at 1,250. Gold has traded at 1,320, somewhat below the one Fibonacci. Also, silver has reached its 50 DMA and backed off, while gold has yet to do so. If silver closes above its 50 DMA a couple of times, it would then complete the reverse head and shoulder and enter its next up leg.

Here is a Summary of what we know: the silver and gold markets synchronized, with silver may even be ahead of gold; silver is our canary in the mine to tell us if the correction is over. If the current picture holds, the correction will be over before the first of March.

Are we there yet?

Are we there yet? That is a phrase that has been satirized in Shrek II. Just hilarious. Of course, the phrase loses its humorous side when your children keep asking it during a long day of driving. We are asking it in connection to the precious metal bear market.

Let's look at the graphs. The first graph (Gold), shows areverse head and shoulder, with the deepest part of the head 24 days after the neck. That suggests a total length for the bear of 48 days. The second graph down is the Gold miner index (GDX). It also shows a similar pattern, where the end is shown maybe a couple of days earlier. The third graph down is AXU (Alexco, a Canadian silver miner). Ditto for pattern, but an even shorter duration. I actually drew the head and shoulder pattern for THM and again, the same pattern emerges.

All these suggest that the end of the bear will come in the first part of March. The last graph is a take over pattern for NAK. The Palin tribe will be happy no doubt.