Precious Metals: In the Murk.

From October 2010 till Jan 2011 gold has traced out a near-parabolic pattern that are usually seen at market tops (graph 1). This was followed by a reverse head and shoulder pattern that signals the reversal of a previous down pattern. Graph 2 shows a smaller portion of the data so the pattern is clearer. Were this all that was said, I would be saying...'get ready for a rally.'

But, Larry Edelson of Weiss Research is forecasting (again) a drop to 1,250. His forecast is based on graphs 3 and 4. Graph 3 in comparing the gold prices predicted by the cycle theory (red) and the weekly composite gold price. While there is some agreement up to October 2010, the relationship clearly breaks down afterword. We can then proceed to Larry's second graph. Here he contrasts the gold price with the RSI. From July through November, the rising gold price is accompanied by overbought conditions. Then the recent rally shows much less overbought conditions. To Edelson, this signifies less strength. However, a look at the top graph (graph 1) shows that overbought conditions signify a pending reversal, a coming drop. And there is no showing of an overbought condition now. We see much more overbought conditions in the silver prices and indeed that market has been busy.

The last two graphs show the gold miner index GDX. The next to last graph shows a massive head and shoulder formation. Not only is the formation broad, but compound; i.e. it has short jabs downward halfway into the trough. So, let's look at the GDX over a more extended period (last graph). We see a compound reverse head and shoulder that hit its low in Feb 2010. This formation did not send the GDX to new record, but the following formation (centered at the beginning of August) did lead to new records. The current RSI is a bit larger than the one centered in August. Are gold and gold mining stocks about to take off again?

As I stated before, a good weather man looks out the window before delivering the forecast for the day. So, how is gold doing today? Well, earlier it was down forty dollars an ounce. Now, it is down $29.

The markets are generally crazy today. While, we are told that Lybia has suspended oil shipments, crude is down $3.72 this morning.