Rivers of Gold

June 21, 2011

"A trend is like a river flowing in its banks, around rocks and sharp bends. Occasionally, a river will be stable and flow smoothly. But at other points, it will be hazardous with wild rapids, a deep gorge, even a water fall or two. The trend is not about measuring the waves in the river because wave analysis is about as valuable as a rear view mirror in a head on collision with a rock. The trend is all about direction, energy and flow." (From an article by Trader Garrett)

Good News

  • Gold's trend is positive while silver is in a back and fill mode.
  • World currency gold markets are very positive led by a new high in British pound.

Bad News

  • The XAU daily TDI trend is negative.
  • The XAU weekly TDI trend is negative.
  • The XAU monthly TDI is positive but with a declining Pendulum SRA cycle indicator question mark.
  • The XAU/Gold ratio has fallen off a cliff and many mining shares are grossly undervalued.
  • The XAU weekly Market Health Indicator below, which shows the character of that trend, is attempting to form a base pattern but needs more time.

Ugly News (but improving)

Recently, the XAU fell below 192 support which was very negative but a bottom in the daily chart is, again, slowly emerging along with some positive divergences. Get ready.

As noted previously, without a positive XAU weekly TDI trend, however, no significant advance will occur in that index.

XAU Weekly TDI trend

Collision Course

Here is where a metaphorical example might be useful to illustrate trading in context and setting and the effect of higher cyclical forces.

A cement truck (weekly TDI trend) is coming down a hill and collides with a small sedan (daily TDI trend) traveling up the same hill. Clearly, the sedan is demolished and begins to slide back down the hill.

This is precisely what happened 2 weeks ago in the XAU. The result was a resumption of the daily downtrend. Please see the daily chart below.


Note that the overlaid green Pendulum SRA cycle indicator in both timeframes (daily & weekly) simultaneously arrived at zero (0-100 parameters). A very rare event. This is a first step in aligning the different timeframes toward a more bullish posture. More work still needs to be done but this is certainly an initial encouraging development.

We are getting closer to a resolution.

Trend of the Rivers

We will have a continuing back and fill or sideways price action between the highs of January 2011 and the recent lows until at least July in all these markets.

In any event, this downtrend/sideway action will allow time to build a platform for a possible significant launch when seasonality factors are more favorable. When the XAU weekly TDI turns positive, look out.

Gold's performance and outlook is improved with a faint possibility (not a probability) of a new all time high. Silver, like the XAU, is in a back and fill mode. Probability analysis does not suggest a new high in silver for a considerable period of time.

Additional important analysis on the S&P500 and other financial sectors can be reviewed here.

Portfolio Considerations

We are looking at a number of quality gold/silver stocks, particularly in the low price area, that are showing early signs of base pattern development, exhaustion or selling climaxes. As noted above, they are also very undervalued to the gold/silver price and are currently at "on sale" prices. This is a very encouraging development combined with a very low risk environment.

Rivers of Gold Summary

Within the context and setting of an overall bull market in gold, silver and the XAU, nothing has changed. The fundamentals driving these markets are still in place with rolling currency debasements, unmanageable debt levels and inflationary pressures worldwide. This is not an environment where gold or silver will completely crash in any major currency, including ours.

Currently, gold has taken a leadership role in the river of trends and the other indexes and stocks will follow in due course. It's just a matter of time.

Small amounts of natural gold were found in Spanish caves used by the Paleolithic Man about 40,000 B.C.