When using TA, it is nice to see multiple indicators that appear to be telling the same story. A confluence of data points if you will. Gold has extended beyond trend lines as the Andrews Pitchfork clearly shows. It has recently pulled back to test the top tine of the fork and is currently in rebound mode. The confluence comes into play when you consider the symmetry of a break above the top tine being matched at some point with a break below the bottom tine, conveniently right into the 38.2% fib of gold's entire bull market at around 450. Considering what I believe is a healthy percentage of gold "investors" who are no more committed to the barbarous relic than they would be to lean hogs, soy beans or internet stocks if they were the rocket ride du jour (hello hedgies), I think a trip to the 450's is a reasonable possibility.
The Fed is not fooling around here. They have made inroads into breaking the housing market and of late commodities have hit some speed bumps in the road to what should be much higher prices down the line. While gold has outperformed general commodities since mid 2005 (see break out of 4 year sideways trend noted above), it could get caught up to some degree in a general downturn in hard assets as the Fed tries to gain the "street cred" it needs before going back to its modus operandi, inflation policy. Remember Bernanke's raison d'Ítre. As an aside, for those who are bullish the bond market, this chart is bullish too, for bond yields that is. Not bond prices.
The yield curve is bordering on inversion, but the TNX chart says this will not continue indefinitely. At some point I expect this chart to confirm the truth. There is inflation in the system. Go figure.
Getting back to the yellow metal, gold became overbought recently due to speculative fervor and a healthy dose of the old terrorism canard (Iranian nukes). This is not a comment on the degree to which terrorism or nuke-enabled theocracies are a threat. It is merely a comment that since discovering the goldbug handbook in 2002, I have personally felt that the debasement of the dollar through out of control credit/debt creation is the biggest threat to the US that currently exists. This is my fundamental reason for being bullish gold. Simply put, I do not believe the macro casino managers when they tell me that mind-boggling debt is okay for an ongoing global growth story. A great inflation is a time (an opportunity really) to pay OFF debt, not go deeper into it. This is a deflationary concept, but since so few people are employing it, the great inflation train moves forward until one day it grinds to a halt and the wheels fall off. That is when the music stops and what you thought was money will no longer buy the hard goods you need and may not be serviceable in paying off the debt you need to pay off either.
Any near term major correction in gold would be a good opportunity to stock up on your favorite precious metal investments and strap in for the long haul. We are in a secular bull market in resources, commodities and hard money. We are in a secular bear market in paper currencies, being led lower by the world's reserve currency, The Federal Reserve Note (From dictionary.com: n. 1. A certificate issued by a government or a bank and sometimes negotiable as money. 2. A promissory note). The next buying opportunity in things you will need is likely to be the last one in a long while for reasonable people to prepare for what lies ahead. When you hear Ben warming up those Huey rotors, you will know it is too late.
This has been another Biiwii commentary that started out as a simple technical analysis piece and ended up careening headlong into macro-economic Armageddon. So be it.
18 February 2006
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