SCHMIDT ON GOLD
Ned W. Schmidt, CFA, CEBS
THEME: An interesting pattern has developed in the spot Gold market suggesting that additions to Gold positions might be timely. That statement is clearly a wishy-washy way of saying that the current situation looks good. Gold investors should be adding to positions. That said, do not blame us if all does not work
out.
We have been watching the irregular short-term pattern that has developed in the past few weeks since the high of about $328. As you can see in the chart to the right, a series of lower highs and lower lows had developed. Each of the lows gave off the characteristics of a good buy.
This week we are seeing another buy signal develop. In the graph to the right we are using extremely short-term measures rather than the longer term measure that is published monthly in the newsletter. These readings are somewhat more frequent, as one would expect from a shorter term measure.
Importantly this buy signal is coming in at a price above the previous low. That development is encouraging. We would now be watching the last short-term high of $316.60. This situation may be seen more easily in the chart at bottom right.
A London closing above the $316.60 level would be extremely encouraging.
In the chart to the right one can see the small down trend line that is being threatened by recent action. We have also drawn a line in at the $316.60 level. A positive resolution of this pattern is likely, and would have bullish implications.
The chart at the right to which we have been referring plots the price of Gold along with the VIX.
The VIX is the measure of option volatility that has become so popular. The recently strong move in the U.S. stock market developed off the VIX moving above 50 as shown in the graph.
A number of forces may be in play here. The stock market has bounced nicely off the lows. Hedge funds are hurting this year. Returns have not been good and investors are unhappy. This combination may be forcing them to book their stock market profits and repurchase Gold they previously sold to finance their stock activities.
Iraq may also be playing a role. Bush does seem to be determined to do something. At a minimum he probably is convincing some that invasion is likely. Quite simply, owning Gold if an invasion of Iraq occurs makes sense.
Investors in the Middle East are probably also leaning toward Gold. The much discussed
movement of Saudi funds out of dollar-based investments is probably occurring at some level. Others may be following that same pattern.
The entire structure of commodity prices is also pointing to higher inflation. The Dow Jones-AIG Spot Commodity Index is up over 10% from a year ago. Importantly attitudes toward prices have shifted. The Dow Jones-AIG Futures index is now also up from a year ago. This shift means that attitudes toward future prices is shifting to a more
bullish stance.
The dollar's value continues to ignore the fundamentals, and is holding at current prices. At the same time the final stages of the Housing Bubble seem to be developing. Buyers there are acting just like buyers of technology and telecommunications stocks as the NASDAQ Composite Index climbed toward 5000.
With an interesting price situation, the possibility of war growing, some foreign investors moving out of the dollar and the likelihood of a collapse in U.S. housing prices, investors would be wise to add to Gold positions. Remember also, Gold is in a Bull market on its way to $1,256 so buy points are our only interest.
Ned W. Schmidt, CFA, CEBS
nwschmidt@earthlink.net
Ned W. Schmidt,CFA,CEBS publishes THE VALUE VIEW GOLD REPORT, a monthly review of the developing Gold Super Cycle. His major report, "$1,245 GOLD", 150+ pages with 70 charts and graphs, is essential reading for investors wanting to understand the coming Gold Super Cycle. This report is rapidly becoming a best seller among both those new to the Gold market and those that simply need their faith renewed.
Email this Article to a Friend 
Printer Friendly Version