We Are Looking For New Gold Rally Ahead
Jay Taylor
Roger Wiegand’s Chart of the Week. www.TraderTracks.com
We Hope Gold’s Plunge Didn’t Scare You Out Of The Market
Contrarian analysis suggests gold's plunge last week was a mere correction in an ongoing bull market. Your editor agrees with Mark Hulbert writing last week for MarketWatch said the following: “If gold bullion's plunge over the last couple of days is enough to scare you into selling, then join the club. The club of weak hands, that is. The very purpose of sharp corrections during major bull markets is to transfer ownership from weak to strong hands, thereby preparing for the next leg up. And a contrarian analysis of current sentiment among gold timing newsletters points to gold's recent plunge as just a correction. Consider the last time that gold bullion suffered a one-day plunge as big as it suffered on Wednesday, when gold for April delivery fell by 5.9%. That occurred in May 2006, nearly two years ago. Far from precipitating a major bear market, however, that month's
correction prepared the foundation that enabled gold to eventually surpass its previous all-time highs.” –Mark Hulbert, MarketWatch
Actually we are not sure gold will enjoy and immediate rise to new highs. We look at this enormous correction of about $115 in just a couple of days as similar to the major correction that occurred in 2006 as you can see from the chart below. We may well watch gold fall a little further and then work its way up toward another new high in the months to come.
From a technical point of view, Roger Wiegand believes gold has bottomed out. He is calling for a basing of gold in the $915 to $920 range. If it falls below $915, we could go quite a lot lower. But he doesn’t think we will. Note that a $915 to $920 range takes the yellow metal down close to the uptrend line dating back to September 2007. Gold closed the week at $919.20.
Actually, we would not be bothered in the least if gold fell considerably lower. It could fall below the lower uptrend line shown in the chart above and still by nearly $80 or $90 and remain above its 200 day moving average.
We would also direct your attention to the chart below, which shows the monthly average gold price dating back to 1995. Using the London P.M. Gold Fix, the average daily close for gold so far during March is $983.58. That is a huge distance above the 20-month moving average of $711.87 and the 40-month moving average of $604.93. We think it would be normal and actually very constructive for the long term bold bull market if the moving average price of gold actually declined back toward the 20-month moving average as it did after the 2006 correction. We would be concerned if it fell decidedly below the 20-month average and we would declare the bull market in gold over if it fell below the 40-month average. But we show you this long term moving average to share our long term perspective and to explain why the plunge in the price of gold has not shocked us or scared us out of this long term gold bull market. Quite the contrary, we think this shake out provides an excellent buying opportunity for gold itself and even more so for the gold shares. There is no reason in the world to think this bull market in gold is over. In fact, it is no doubt still fairly early in what we think will be one of the most fantastic bull markets in history.
Still its reasonable to ask what happened last week? Why did gold, silver, and most of the commodity complex take such a hit late last week, especially after the precious metals hit new highs?
There is an old saying that when the margin clerk calls you to pay your margin on your losing positions, you sell what you can, not necessarily what you want to sell. With loan portfolios suddenly turning worthless in a
matter of months, you can rest assured that there were many “margin calls” of one sort or another last week.
Indeed there is some speculation that some funny games may have been played in the rape of Bear Stears sharehodlers by J.P. Morgan Chase which was orchestrated in a most hurried fashion over last weekend and just before the Plunge Protection Team met in the Oval Office at 2:00 on Monday.
Did Bear Stearns have a huge long position in gold, oil and commodities which rose in value dramatically in part because of the news of an imploding Bear Stearns balance sheet? If so, that could have been great news for J.P. Morgan Chase, which has one of the largest gold short positions in the world. Indeed, selling of commodities by Bear Stearns to meet margin calls was supposedly one of the major factors that sent the gold market and other commodities into a tail spin this past week after hitting all time highs on
Monday.
Don’t Be Fooled By Wall Street Propaganda.
The Inflation Play Has Just Begun!
Wall Street will try to spin the decline in commodities and a rebound in stocks as a major turning point for the paper markets, because only if the product they produce—paper—are accepted can they keep robbing the
middle class and getting rich, richer, and richest! Please don’t be fooled by this mainstream pap. Fundamentally, in the long run, nothing has changed. America has lived beyond its means and now the piper must be paid. Consumers have borrowed not only against this year’s income but also against their incomes for many years to come. If you consume more than you earn today, tomorrow you must consume less. Policy makers may try to
pull the wool over the eyes of average Americans by printing money so the wheels of commerce continue to turn, but in reality they are not creating wealth. Rather, they are creating inflation. And given that wages are not
even close to keeping up with the rise in the cost of living (the real cost of living, not the one that government calculates), we are just starting to see the decline in the standard of living for Americans, because just the basic
life sustaining items we need to buy to carry out our daily lives is eating into our ability to buy the extras.
March 22, 2006
Jay Taylor
Editor of J Taylor's Gold & Technology Stocks
www.miningstocks.com
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