Money Talk Daily

Archive for the ‘Gold & Silver Markets’ Category

There is no point in beating around the bush.  This chart of the Gold BUGS index is just plain dreadful.  If anyone wonders why those who are long gold shares are having indigestion, look no further.  So now what?

There are no doubt some spectacular buys out there.  Of course, stocks are cheap for a reason – and cheap stocks can get cheaper.  But unless the bull market in gold is over – a belief I do not accept – this thing will turn around at some point.

For those who believe likewise, one strategy would be to dip a toe in after we get a technical buy signal.  The reason for just a “toe” is three-fold:  (1) We don’t know where the bottom is yet, and technical buy signals are often wrong.  (2) The wise investor never expects to buy at the absolute bottom. (3) This bull market as a long way to run so there is no emergency to buy right away.

As always, do your own research before buying.

(Click chart below to enlarge.)

For those of us who are fans of the royal metal, the past several months have been very trying.  In fact, from browsing other blogs, perhaps desperation is a better word.  I’ll just throw out some comments here in the hope of soothing frayed nerves — including my own.

• Major bottoms are typically formed when negative sentiment is at an extreme.  We’re probably near or at that stage now.
• The factors that have been driving the gold bull market for ten years have not abated.  They’ve intensified.
• The hedge funds live to wreak havoc in markets so it would seem.  As they can push markets down, so they can also push them up.
• While markets can stay oversold for an extended period of time, gold is oversold.
• Some of the major money center banks, which have not always been friendly to gold, now have bullish forecasts for the rest of 2012.
• Foreign central banks are buying gold.
• Federal deficits are projected as far as the eye can see.  Thus money creation by the FED is baked into the cake.
• The COT report can be interpreted as bullish for gold.

None of this means a major upturn in gold is imminent.  But it could be.  However, to argue that gold bull is over is very, very tough to do.  Could someone make money shorting gold in the short-term.  Certainly.  By staying short for the long haul?  Very unlikely.

Do some research on your own.  Try to set your emotions aside.  Then make your decisions.

By the way, I’m still long.

And here’s the chart that’s driving gold bugs nuts.  Click to enlarge.

Gold has appeared to be moribund for several months.  It’s been unpleasant.  But that’s nothing compared to the miners which have been downright depressing. Could all this be manipulation to shake out the weak hands?  Sure, that could be part of it.  Probably the hedge funds are playing their usual games, too.  Whatever the cause, I believe some miners are selling for basically the ounces they have in the ground – the company comes in the deal for free so to speak.

So are some of the miners now screaming buys?  Probably, although they can remain comatose for a bit longer.  Sooner or later, I believe things will break loose largely because the circumstances that give rise to higher gold prices have not abated at all.

Keep in mind, also, that the market cap of the entire gold mining sector of the stock market is not large relative to other sectors.  In other words, if we get a significant move into the gold miners, the result could be stunning.  No guarantees, of course.  And do your own research.

Anyway that’s why I continue to hold various gold mining stocks.  Perhaps you should, too?

If you’ve been around the gold and silver markets for some time you’ve learned that they can get very volatile and seemingly confound even the most accomplished technical analyst. Does this cause you tension and lost nights sleep? If so, you need to step back and ask yourself some questions:

1 – Are the factors that have caused gold to rise every year for the past decade coming to an end? In other words, do you expect governments to return to sound fiscal and monetary policies anytime so? Do you even expect them to move in that direction? In other words, are the movers of the gold price still in place? I believe they are.

2 – What is your time frame? Have you been acquiring physical gold and silver, hopefully on the dips to use as insurance against the debasing of the U. S. Dollar? If so, you are in this for the long haul. Or are you trading the precious metals via the futures markets using considerable margin and thus have a short time frame? If you are doing the former, and have been doing it for some years, you should be very happy and somewhat relaxed. If you are doing the latter, you really have your work cut out for yourself, and unless you are very good at what you’re doing, you are possibly in the hole and very stressed. Of course with the micro gold futures contract a small trader can be successful with gold futures provided he or she is very careful to avoid excessive margin, studies the markets carefully, practices good money management, and is-well disciplined. Only you know what you are.

Now take a look at these two charts and think carefully about where you believe the trend is headed and how easy it would be to be on the right side of the trend. In one chart each bar represents the price move during one month – in other other, one day. This should give you some help in determining what sort of precious metals trader/investor you wish to be.

(Click on charts to enlarge if desired.)

Sometimes it helps to take a longer-term look when faced with the frustrations gold investors and traders have experienced these past few months. Only the most nimble of traders have done well actively trading gold so far these past few months.

Trading gold and silver futures is never for the faint of heart, and 2012 has proven to be no exception. Sometimes the best move as a trader is to stand aside until things shake out and the market proves itself. Leverage can wipe you out. Beware. If you don’t have good money-management skills with your trading portfolio, I recommend you stop trading and get some. There are books on the side bar of this home page that can help with this – especially the Tharp books. (Full disclosure: If you buy any from Amazon from this site, I get a commission.)

Back to gold. So what’s next? Look at that chart and ask yourself: Have any of the factors that have propelled gold upwards until the correction and increased volatility that began in September 2011 changed since that time? If so, how? The answer to that will determine your actions. What about the mining shares? More discussion on that later…

While the last two days have been uninspiring, gold did start the week by bouncing off the support we had hoped for and turned in a nice performance through Wednesday. Thursday and Friday show indecision and a pause – almost as though gold is trying to figure out what to do next having broken through resistance at $1,725 and closing out the week just north of the 75-day moving average. Still, we’ll take it. We didn’t give up our gains, and we’re still on the right side of the moving averages. Let’s see what next week has in store for us.

Click to enlarge chart.

In a move that had to give gold longs some relief, gold decisively broke through resistance and the 50% Fibonacci level at about $1,725, went on to break through the 75-day moving average, and closed just above $1,750. Of course financial news out of Europe no doubt helped put a fire under gold’s move.

But the bigger point is there will no doubt be many such events as this economic tale of woe continues to unfold. Hence it seems almost reckless to consider gold as being in anything other than a long-term bull market. Yet for those who continue to hold a short to medium term view as well, the charting continues.

Click on chart for larger view.

Gold has yet to muster the strength to break out of this trade range. Yes, the past two days have show some gains, but the spinning top today tells us that traders are undecided. What to do next?

To sound like a broken record: (1) Nothing economically/financially has been fixed, and (2) Gold needs a decisive break and close above $1,725 to get the bull rolling again.

Click chart to enlarge.

Once again, gold bounced where we longs had hoped it would and moved up from there. Interestingly, it made a run to $1,725 which is our “break-out point” before retreating back to around $1,708. So it moved from one Fibonacci level to the next and finished up in the middle. To repeat, we need a decisive break and close above $1,725 to make us more confident that the short-term bull move is back on.

For the longer-term gold investor who sees gold as a hedge against the financial crises that have no practical solutions, these moves really don’t mean much. Nothing is fixed. Gold remains in a long-term bull market.

Click to enlarge chart.