BURAK ON GOLD
Gold
The move into new bull market highs, which occurred late last year, is starting to look iffy although from a longer term perspective is still okay. Merv's Fan Principle worked perfectly, showing the downside break and the two support areas. For those not technically minded, note the volume peaking just BEFORE the price reaching its Dec. high and then dropping off dramatically as it got to the high. One ignores such warnings at one's risk. The level to watch now, from a short and intermediate term standpoint, is the $410 level. This would break a serious intermediate term up trend line and Fan Principle final support. The latest market action seems weak and the supports just may be broken. Watch for it.
Looking at my point & figure charts, my long term 3 year old projection to $600 is still valid. The charts are showing an even greater projection. Once decisively through the $500 level, on its way towards that $600 mark, a further projection to at least $1500 might be calculated, but let's wait for $600 first.
U.S. Dollar
I'm not one to claim a reverse correlation between the US $ and the price of gold. There are just too many global factors affecting the price of gold to think that. However, there does seem to be some correlation, at times, and many believe in it so it is important to understand what's happening with the US $.
The Elliot Wave Theory is not my thing but it seems that Elliot wavers might have claimed the bottom in the US $ in early 2004, but it just keeps going down. The $ is in a bit of a rally mode, how high it will go is anyone's guess. One very encouraging indicator is the long term Relative Strength Index (RSI). Whether you use a 30 week or a 52 week time period Indicator you will see a very decisive strengthening in the $ momentum over the past year. It has all the indications of a long term reversal of trend somewhere in the not too distant future, if it is not already here.
Gold Indices
The numerous gold indices are all giving us the same story, the bull has not yet come back. Only the short term Johannesburg Gold Index is showing some short term life. The daily action has once more turned down but not yet picked up by the computer. Unless one knows better than the charts, this is not yet the time to be investing or gambling on the gold stocks.
The one comforting sign is that most Indices are still above their long term and intermediate term up trend lines. Unlike the moving averages, this is the one trend indicator that is still positive. Not to put too great an emphasis upon it but the momentum indicators are negative and suggesting recent trends are getting weaker and weaker. Breaking of those trend lines might almost be expected soon. If not, new highs ahead.
Merv's Gold Indices
Looking through the various Merv's Gold Indices is like walking around the Tsunami disaster area, nothing but carnage. The least disastrous is the gambling Index (Merv's Gamb-Gold Index). After more than a 1300% advance in two years, the Index had a falling out last year but recovered to new highs in Nov. Unfortunately, the chart suggests that another major falling out may be about to occur. Momentum has been very weak lately and unless it should strengthen up fast, a whole lot of downside may be ahead for the gambling stocks (also for the rest).
Reading the Info table
The table provides the latest weighted moving average (MA) along with the MA direction (+ or -), the latest price momentum (MOM) along with an indication if this momentum is increasing or decreasing (+ or -), the relative strength (RS) of each component versus others in the table along with an indication if such RS is improving or decreasing (+ or -) and an overall technical rating (RATE) of each component. All this for each of the three investment time periods.
Mervyn Burak, CMT
Hudson A/S
merv.burak@hudsonaero.com
19 January 2005
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