Conflicting Messages From Gold Chart Analysts

August 7, 2009 | By | 2 Replies More

Spot gold has stayed comfortably above the $955 an ounce level, previously resistance, but in the last week looking like support.

Conflicting messages are coming from the gold chart readers camp as analysts ply their trade in the hope that their choice of time frame, over bought, over sold, head and shoulders, reverse head and shoulders, triangular patterns, fibonacci, MacD etc. and the myriad of other mostly lagging indicators will guide them and their followers to bumper profits.

We do not argue that in many cases where analysis of the charts leads to profitable trading is down to luck, because it is not. The simple reason is that there are hundreds of thousands of traders and investors, professionals and amateurs alike, that react in the same way when the charts throw up clear signals. It is a question of which comes first, the chicken or the egg, is it the cart leading the horse?

The problem with gold and silver in recent weeks is that the charts, whether daily, weekly or monthly, are not sending out clear signals, although in the longer term, a year or more, the indications are clear that the two metals are in an uptrend.

For those that want to play the shorter term movements, the market is fraught with danger, perhaps only the shortest trades made by experienced scalpers show a chance of sustainable, regular profits, but I would not bet on it.

The closest link to the price movement of gold right now is the US dollar, with the oil price hovering in the background, and here lies the problem. The principal drivers of stock, bond, currencies and the commodity markets are the US, UK and continental Europe where the vast majority of the cash flowing in and out of these markets originates.

The result in the most simplistic way is that if the dollar strengthens against the euro or the British pound the price of gold goes down, followed by that other store of value, silver, and vice versa.

Yesterday, much to nobody’s surprise, the Bank of England announced that it was to pump in another GBP50 billion of so called quantative easing to make a total of GBP175 billion of new money entering the British economy.

We will ignore, for the time being, the eventual consequences to inflation. What the announcement told the world that all the huff and puff emanating from the politicians and other vested interests, that the UK was coming out of the recession, was a combination of political rhetoric and wishful thinking.

On the back of that news the dollar strengthened and gold lost its steam and was down a little.

In passing we cannot help but observe that the result of every labour, read socialist, government since the Second World War has resulted in the UK becoming the “basket case” of Europe. Congratulations to Tony (carpet bagger) Blair and Gordon (intellectually challenged) Brown for keeping their political party’s record intact!

Over the weekend we may see some more “surprising news” coming out of Europe, whether it is good or bad it will be reflected in the price of the dollar and gold will move in the opposite direction. Or it may be the US making the economic headlines with the same result.

The fact is that it is anybodies guess what tomorrows news from the US, Europe or the UK will be, we can only conclude that much of what we are told is at best unreliable and at worst downright lies, so until the summer is over we are sticking to our positions in gold and silver and if there is an opportunity to buy the SLV Oct 15 Call (.SLVJO) at around 20-25 cents before the end of August we will have a gamble. SLV closed Thursday at $14.32.

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