Gold Price - Where is it heading?

[>Apocalypto<]

Gold Bugs,

I am not trying to rain on your parade, below is a chart of the US$ index weekly.

I think it's starting to paint a more and more bullish picture. I agree with Wavepickers comments. It's in a creeping trend and its also in my opinion starting to form a downward diagonal which is normally bullish. the chart is in a weekly time frame and if the pattern proves bullish it may take 1-3 years for it to really get going. But the evidence is there.

Good trading

 

[Sean K]

Gold Bugs,

I am not trying to rain on your parade, below is a chart of the US$ index weekly.

I think it's starting to paint a more and more bullish picture. I agree with Wavepickers comments. It's in a creeping trend and its also in my opinion starting to form a downward diagonal which is normally bullish. the chart is in a weekly time frame and if the pattern proves bullish it may take 1-3 years for it to really get going. But the evidence is there.

Good trading

Looks to have broken down through 80 to me. I'm not sure if that's a bullish sign. I do agree it's softening, but I'm not sure about 'bullish'.

If the lower portion is a descending triangle and has been broken to the downside, then won't the target be the height of the triangle which is.....ouch.

Can you provide a shorter term chart with the 80 support level clearly shown? If it is there??

Cheers.

 

[>Apocalypto<]

Looks to have broken down through 80 to me. I'm not sure if that's a bullish sign. I do agree it's softening, but I'm not sure about 'bullish'.

If the lower portion is a descending triangle and has been broken to the downside, then won't the target be the height of the triangle which is.....ouch.

Can you provide a shorter term chart with the 80 support level clearly shown? If it is there??

Cheers.

Kennas,

that's a different pattern to a descending triangle it's a EW pattern ending diagonal please see my attached oil chart for a reference cheers.

please note its not a defenate bull sign buts its building and i am more bullish then bearish on the US$ at this point but that may change we need a break out to confirm it. cheers

please note the abcde count i did is very crapy and wrong its the pattern we need to focus on not my crappy count!

 

[Sean K]

Kennas,

that's a different pattern to a descending triangle it's a EW pattern ending diagonal please see my attached oil chart for a reference cheers.

please note its not a defenate bull sign buts its building and i am more bullish then bearish on the US$ at this point but that may change we need a break out to confirm it. cheers

please note the abcde count i did is very crapy and wrong its the pattern we need to focus on not my crappy count!

I can see an a-b in the gold chart but what are the rules for the distance down to the c? Could we see an abcde? Labels on the gold chart would be great! cheers.

 

[Uncle Festivus]

Gold Bugs,

I am not trying to rain on your parade, below is a chart of the US$ index weekly.

I think it's starting to paint a more and more bullish picture. I agree with Wavepickers comments. It's in a creeping trend and its also in my opinion starting to form a downward diagonal which is normally bullish. the chart is in a weekly time frame and if the pattern proves bullish it may take 1-3 years for it to really get going. But the evidence is there.

Good trading

Hi Ti,
I think the relevance of the study of the DX in relation to gold is only significant in that there has been a high inverse correlation with gold up till now, so it is customary to assume that any reversal of the trend will automatically be a negative for gold.

There is nothing to say that the relationship between gold and any other thing for that matter will and should continue as we have become accustomed to, and might in fact be starting to break some of these connections due to the obvious reasons.

What should also be factored in is that the Euro features prominatly in the index so it is really a measure of relativities.

While technically there are probably valid assumptions, it will probably come down to who has the least worst currency, as events in Britain have shown some of the contagion has now spread to the Eurozone countries.
If you view gold as a currency then it will probably appreciate in proportion to the perceived risk of holding the relevent currency.

So yes the index might have technical reverses in trend, but not sure if it will automatically mean a reversal in golds fortunes? In fact it may already be irrelevent as far as gold is concerned? I can't see any fundamental reasons why the USD should suddenly start a secular bull trend.
UF

 

[>Apocalypto<]

I can see an a-b in the gold chart but what are the rules for the distance down to the c? Could we see an abcde? Labels on the gold chart would be great! cheers.

Kennas,

the pattern has not completed yet it's still forming i am no EW expert but i am now spending a lot of my time studding the EW patterns and Mclarens definition of trend.

I do have a mentor and buddy that is exceptional in EW, he is guieding me in my devalopment. So I can say with conviction that there is a possible diagonal in the works. but it needs futher time to define and complete.

I am not saying the US$ is about to shoot into the heavens all i am doing is showing evidence that I can see. looking at a weekly chart is better then a daily you can see the whole life of the trend in its all. I feel the bear market in the US$ is in its last phase. But I may be totally wrong. time will tell.

good trading

 

[>Apocalypto<]

Hi Ti,
I think the relevance of the study of the DX in relation to gold is only significant in that there has been a high inverse correlation with gold up till now, so it is customary to assume that any reversal of the trend will automatically be a negative for gold.

There is nothing to say that the relationship between gold and any other thing for that matter will and should continue as we have become accustomed to, and might in fact be starting to break some of these connections due to the obvious reasons.

What should also be factored in is that the Euro features prominatly in the index so it is really a measure of relativities.

While technically there are probably valid assumptions, it will probably come down to who has the least worst currency, as events in Britain have shown some of the contagion has now spread to the Eurozone countries.
If you view gold as a currency then it will probably appreciate in proportion to the perceived risk of holding the relevent currency.

So yes the index might have technical reverses in trend, but not sure if it will automatically mean a reversal in golds fortunes? In fact it may already be irrelevent as far as gold is concerned? I can't see any fundamental reasons why the USD should suddenly start a secular bull trend.
UF

Some very interesting Points there UF, very interesting.

 

[wavepicker]

Does one wonder if this is all the same market the last 4 years?

-Trend in Gold: Up
-Trend in Silver: Up
-Trend in Foreign Currencies traded against USD: UP
-Trend in Commodities is: Up
-Trend in World Stock Markets has been UP

If we get another important top in the stock market starting next month and it tanks, what will the rest of these markets do?? Will they follow suit and get thumped as they did in the last correction??


Something to think about before getting too carried away…….

 

[bean]

It would appear someone forgot to tell the Aussie Gold Stocks Gold is US$ 735
Volume in a lot of Gold stocks not much to speak off.

The COT's must be getting to an interesting stage.
The US markets DOW S&P Nasdaq getting near there July highs.

We have the US$ at lows....I wonder if that is causing any ripples in any Countries....Is that putting there economies under any pressure.

I am still in cash. not missing anything at the moment

 

[Uncle Festivus]

Something to think about before getting too carried away…….

I am still in cash. not missing anything at the moment

Carpe diem?

Ride the next bubble - whatever it is.

 

[barrett]

This is the advantage of using leverage... even if you don't use the leverage.

Supposing Gold is $700 oz and AUD 0.80 and you have $87,500 AUD

You could buy 100oz of physical Gold.... or, you could by 1 x 100 oz Gold future and be completely unleveraged.

You margin would be $3,375 USD which is ~$4220 AUD. This is what you would need to lodge with your broker.

So your position is:
1 x 100 oz Gold Future @ $700
$3375 USD lodged with broker
$83280 AUD in cash

Let's suppose both AUD and Gold went up 10%. i.e. Gold to $770 and AUD to 88c.

If you bought 100oz of physical gold, you would be squits, no profit.

However, if you bought the future, your position would be.

1 x Gold future @ $770
$10,375 USD with the broker ($7,000 USD profit + initial margin)
$83280 AUD in cash

Now if you wind up the trade and convert your profit back to AUD:
$10,375 @ 88c = $11,790
add that to your cash and you have $95,069 AUD.

Slightly less than 10% profit, but a hell of a lot better than zip.

That is ex commission (an iniquitous $6 - $40 round trip depending on the broker) but bear in mind, commish on physical is 5 or 10% for the round trip.

Same principle with buying AUD/USD with AUD... leverage

Great example, Wayne. A semantic point - in this example the profit on the futures contract doesn't come from the leverage itself but from buying a contract for purchase rather than buying the underlying asset. When buying a contract, only your profits are exposed to currency risk. Leverage (eg via a margin loan) could have used to buy the underlying asset (bullion) - in which case the currency risk would have also resulted in zero profit. So a derivative (future or option) provides an inbuilt currency hedge.

Also with futures, for anything more than a quick trade the contango usually becomes an issue. To profit from gold over a year you can buy futures contracts dated 12 months out, but the contango is typically about 10%+ over spot. So you might not be technically 'borrowing' the money to buy the futures contract but you're still paying for it - via the carrying costs. And the contango can shrink or expand very quickly and independently of the gold price. It just complicates things a little in practice when weighing up futures vs bullion decision. IMO the 26:1 leverage, and the inbuilt currency hedge make it worthwhile having some futures exposure as long as the leverage is kept under control!

 

[wayneL]

Great example, Wayne. A semantic point - in this example the profit on the futures contract doesn't come from the leverage itself but from buying a contract for purchase rather than buying the underlying asset. When buying a contract, only your profits are exposed to currency risk. Leverage (eg via a margin loan) could have used to buy the underlying asset (bullion) - in which case the currency risk would have also resulted in zero profit. So a derivative (future or option) provides an inbuilt currency hedge.

Also with futures, for anything more than a quick trade the contango usually becomes an issue. To profit from gold over a year you can buy futures contracts dated 12 months out, but the contango is typically about 10%+ over spot. So you might not be technically 'borrowing' the money to buy the futures contract but you're still paying for it - via the carrying costs. And the contango can shrink or expand very quickly and independently of the gold price. It just complicates things a little in practice when weighing up futures vs bullion decision. IMO the 26:1 leverage, and the inbuilt currency hedge make it worthwhile having some futures exposure as long as the leverage is kept under control!

Yes good points barrett,

I neglect the contango/coc factor because I trade short term. As a balancing point, the cash will be kept in an interest paying account, which will offset the contango to some degree, and a purchase of physical will remove the ability of cash to earn interest,.. and you have to pay to store. So even physical will have cost of carry.

But thanks for highlighting it, something that definitely must be considered.

 

[wayneL]

Thanx for the example wayneL I am aware of what you are saying in regards to buying AUD/USD and everytime I look at the AUD I kick myself. I was playing around with a fex FX demo accounts rather sucessfully but when I went to open one all the disclaimers etc put me off. Unfortunately I don't trust my internet connection etc etc enough that I can risk not being able to close out a position if I have to. At least with shares I can physically ring the broker if I need to.

What is the set up with futures? can you ring the broker if you need to?

Yes you can ring them to close out a position. The amount of actual service you get in this regard depend son the broker and of course the level of commish.

With IB, I believe you can phone but only to close out a position at market. Other brokers offer more options here but the commission will be higher, each one is different.... and many brokers have different service levels and commissions.

Here in Oz, Brokerone you will be able to use the phone with, but a few extra bucks over IB.

Cheers

 

[wavepicker]

Carpe diem?

Ride the next bubble - whatever it is.

SAY AGAIN???

 

[barrett]

I use Man Financial (now called MF Global) futures broker, they're in Sydney, you can phone them 24hrs/day, brokerage is $15/contract. Online account/data feed is extra, a monthly fee of around $50.

My dream trade is to buy $1 million worth of Comex Gold contracts dated 12 months out - anyone with a futures account can do this by putting up $40K margin. If gold doubled in the following year, which it could well do - it would be $1 million profit from one trade

If a sensible entry point for gold presents itself in coming months I plan to set up this trade with at least $500K total, using a ladder of $150K buy orders.

 

[barrett]

It would appear someone forgot to tell the Aussie Gold Stocks Gold is US$ 735
Volume in a lot of Gold stocks not much to speak off.

Most of the Aussie gold stocks' cash costs are paid in $A and so it's the gold price in $A that affects their profit rather than the $US gold price.

Given that the $A gold price is about the same as it was two weeks ago (see attached) it's not surprising most of the Australian gold stocks aren't going beserk like the US and Canadian gold stocks.

There certainly is a lot of euphoria in the gold sector at the moment. Some of the Canadian juniors in my dad's account are going up 10% a day, one went up 17% in a day on no news. The majors are going up consistently about 5%/day in US dollar terms.

Our portfolios will continue to be about 60% gold stocks and a war chest of cash waiting for a correction. But the HUI 'gold bugs' index, the XAU and the Nasdaq have now formed potential double tops, at the same time as the US dollar is right on its 15-year low of 78.19. Media and investor sentiment on the US dollar eg "The Death of the Dollar" forum reminds me of December 2005, when the Economist ran the attached cover story "The Disappearing Dollar". At the time it was barely possible to think of a single reason why the US dollar would rise. It marked the beginning of a 10-month, 13% rally in the US dollar index.

Maybe this time the US dollar will break below 15-year support, but I am not going to bet my remaining cash on gold stocks when they are wildly overstretched technically and at major resistance, and schoolteacher friends of mine are asking with interest about gold!

The Marc Faber quote comes to mind, "when teachers and hookers are buying, sell!" (no offence to sex workers - or teachers. They're just very absorbed in their jobs). Maybe that quote applies to all assets at the moment, except the US dollar.

chart:galmarley.com real-time gold price tracker

 

[barrett]

chart:

 

[Whiskers]

I have read a suggestion that the US might sell more gold reserves to help support the $, by dampening the rise in gold price and therefore it's attraction v the $. I've also seen an article suggesting that the EU might also sell more gold reserves, because a collapsed $ would damage the EU as well.

I read some time ago that the US was behind schedule in some international agreement for reserve banks to sell down their gold reserves. I have two questions.

What is this so called agreement and who is it between?

Given these reserve banks have apparently been selling down gold reserves, how much more do they have to sell, and won't they have to buy back some time, and risk undoing things?

 

[wavepicker]

Most of the Aussie gold stocks' cash costs are paid in $A and so it's the gold price in $A that affects their profit rather than the $US gold price.

Given that the $A gold price is about the same as it was two weeks ago (see attached) it's not surprising most of the Australian gold stocks aren't going beserk like the US and Canadian gold stocks.

There certainly is a lot of euphoria in the gold sector at the moment. Some of the Canadian juniors in my dad's account are going up 10% a day, one went up 17% in a day on no news. The majors are going up consistently about 5%/day in US dollar terms.

Our portfolios will continue to be about 60% gold stocks and a war chest of cash waiting for a correction. But the HUI 'gold bugs' index, the XAU and the Nasdaq have now formed potential double tops, at the same time as the US dollar is right on its 15-year low of 78.19. Media and investor sentiment on the US dollar eg "The Death of the Dollar" forum reminds me of December 2005, when the Economist ran the attached cover story "The Disappearing Dollar". At the time it was barely possible to think of a single reason why the US dollar would rise. It marked the beginning of a 10-month, 13% rally in the US dollar index.

Maybe this time the US dollar will break below 15-year support, but I am not going to bet my remaining cash on gold stocks when they are wildly overstretched technically and at major resistance, and schoolteacher friends of mine are asking with interest about gold!

The Marc Faber quote comes to mind, "when teachers and hookers are buying, sell!" (no offence to sex workers - or teachers. They're just very absorbed in their jobs). Maybe that quote applies to all assets at the moment, except the US dollar.

chart:galmarley.com real-time gold price tracker

Great post Barrett, I was thinking much the same in Dec 2004, except pessimism ATM is even greater than then!!

Not that I am hyper bullish the USD, never have been as believe it's in a secular bear, but that does not mean it's going to fall of the face of a cliff ATM. Markets can undergo multi year rallies even in very long bear campaigns, and it would not surprise in the months/years ahead if this actually starts to trace out something completely different than what most expect.

Cheers

 

[bean]

Latest COT and the MAY 2006 COT
Interesting to say the least

DEJAVU

http://news.goldseek.com/COT/1190404200.php

http://news.goldseek.com/COT/1147463220.php