An Insight To The Latest Precious Metal Outlook

April 23, 2008 | By | 4 Replies More

When we write an article it is our aim to provide both an insight to the latest precious metal news and developments and to draw some conclusions as to the future behavior of gold, silver and platinum group metals.

Usually we publish on Monday after we have had time to reflect on the previous weeks events and have had a quick look at any price action starting the week from the Far East, London and other European exchanges before the New York open.


We apologies if you missed our Monday morning musings but precious metal prices continued to follow last weeks lack of a discernible trend as gold dithered around the $920-950 an oz. range, silver stuck in the $17s and Platinum seeing a nice rise only to be hit by profit taking back to below $2000 an oz.

Today we note that oil peaked in intraday trading on Monday to another all time high of $119.90 a barrel and the dollar fell back sharply against the Euro. A few weeks ago this would have resulted in a substantial surge in the price of gold but not so yesterday.

There seem to be a number of factors coming into play that are taking interest away from [tag-cat Gold]gold[/tag-cat] and silver in particular.

Renewed optimism and buying activity in the general stock market as the reporting season has got underway despite some abject results that do not seem to have dampened enthusiasm until Mondays New York close.

The idea that the Feds actions, which is resulting in increasing inflation, is somehow going to be mitigated by a quick rise in share prices. That may be true over a longer term once the pain barrier has been broken and the dollar manages to steady at whatever lower level it ultimately reaches.

A reassessment of investment fund strategy, possibly in the belief that major upward movements in hard commodities are coming to a temporary end and there are some good buying opportunities in other sectors both in the US and abroad (where currencies are no doubt going to prosper against the dollar).

Then there is the need to be liquid enough to take advantage of developing situations and that means cashing in on the profits made from the previously rapid rise in precious metals.

Despite many analysts opposite opinion we are not convinced that the sale of 400 tons of gold by the IMF is not overhanging the market. Until this sale is disposed of we think it is unlikely that gold will resume a steady upward trend towards our ultimate target of $2000 plus an ounce.

Our opinions expressed above may be wide of the mark but we hope that it will give food for thought and encourage further digging into the immediate prospects for our favorite metals.

We are sure that there are other fundamental developments to be factored in before we see a trend in precious metals emerging but for those of our readers who put their faith in technical analysis should study the charts for gold as there is a definite bullish pattern to be found.

We will, of course, keep you informed of any changes in the outlook for any of the precious metals but on a final note have a think about this.

Zimbabwe is the second largest source of platinum in the world (South Africa produces 80% ). It has gold, silver and other precious and base metals in abundance.

China has already made substantial investments in Zimbabwe mining activity.


Precious Metal


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Comments (4)

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  1. David Oldham says:

    I am stood aside gold futures but have just revised my tech analysis now that Friday’s low has almost taken out the 1st April low. I now expect gold to go to 798 ish (basis futures) for a significant reaction at that level.

    We have 3 technical indications which align almost exactly. The 50% retracement from the Oct 06 low which I read to be a wave 2 of some degree, the 1:1 symmetry from the swing down from the March 08 high to the 1st April low and back up to the lower high made on the 17th April. And most importantly this level goes right through the middle of a W.4 high horizontal volume node created during the balance period in mid nov to mid dec 07. This should theoretically provide formidable support and for a bullish scenario could well prove to be a low of considerable significance. Pattern from the March high is now looking like a potential simple ABC correction. The B being at the 956 high.

    My trade strategy will be to watch pattern formation very closely if and when price approaches the 798 area. A tolerance for the level would be around 783 to 812. If the market bounces well I will look to position long as soon as momentum confirms and place a tight stop at a logical level. I will then trail my stop as price works its way up allowing room for the swings I would expect. Only if price then exceeds the March high will I feel more confident about my bullish count.

    You can tell I have studied the bullish count potential for this “correction” I think we are witnessing. But I always make a habit of looking for 3 alternate counts and if gold has instead started a long term bear trend I shall be alerted if price reaches a level below 755.7 and then below 742.8. The bearish technical count would be pretty ugly to say the least and if and when that may start to look a high probability I would start to look for short trades on the metal.

    The third alternate count scenario would be that we have started what could transpire to be a long “complexed” correction which basically drifts sideways ad infinitum. Much as the stock market can lose value by travelling sideways for several years whilst the USD does the work trending downward.

    I hear traders exclaim

  2. David Oldham says:

    oops, didnt finish :-)

    I hear traders exclaim outrage at the stock market’s rally up from the 02 lows. Won’t go into the fundamentals reasons for their outrage here. I think the intelligent readers who follow this site will understand. But when you actually take account of the USD depreciation you realise the stock market has effectively been in a bear market all that time it worked its way up to an apparent high in Oct last year.

    If gold approaches my 798 area I shall also be alert to possible synchronisation in the timing of this technical level with various bull/bear sentiment indicators. Seems to me that the markets as a whole eventually become impervious to a continuous flow of negative news and start to react irrationally. Don’t we just know that ! the recent rally in stocks in the face of evergrowing bearish revelations is but a small example of that. I guess I am influenced by gold’s ability to become the safe haven of all safe havens.


  3. John says:

    Hi David

    Thanks for your very interesting and well argued post and allowing us the benefit of the conclusions you have drawn.

    You may have gathered that we are not among the most enthusiastic supporters of technical analysis, particularly in the gold and precious metal markets. We have, however, to keep reminding ourselves that there are a multitude of funds and investors whose trading decisions are based entirely on strategies derived from the study of technicals. We would not argue the point that interpretations of chart patterns frequently have the ability to substantially move the markets, particularly when a clear longish term trend is apparent. We also believe that some markets are more likely to be moved in the direction indicated by the charts than others.

    Perhaps we should also admit to a sneaking use and appreciation of candlesticks when foraying into the forex markets for some fast action.
    With our opinions in mind we feel that gold prices, with silver tagging along, are and have been for at least the last six months, far more under the influence of fundamental developments.

    If, as many believe, there is even more bad news to come from the financial sector, would you not be expecting gold to push back up to the $1000 level despite the Fed holding steady on interest rates?

    For instance, what if the Chinese decide to dump a sizeable proportion their massive dollar holdings and build up their gold reserves? It is already on record that they are intent on stocking up on gold, and their sovereign fund may have difficulty in being allowed to get much more of a foot in the US under a new administration. With the Beijing Olympics out of the way we may find the Chinese a very different ¨kettle of fish¨ to deal with.

    Then there are developments in Oil, the OPEC nations, South Africa, Russia, Iran, N Vietnam, politics, currency markets, the IMF and so much more that can have an immediate effect on the gold market irrespective of any of the conclusions drawn from historical price movements.

    Having expressed our reservations about technical analysis we do agree with you that there is likely to be a continuing correction but feel that $850 may provide a floor. Break through that and the anywhere in the $700s may be the next support level. If that situation is reached we believe that it will be due to fundamental reasons with the technical arguments just being coincidental.

    We do not expect the gold market to drift sideways unless it continues to stutter between around $900 or slightly lower and $950 an ounce for a time.
    We will be adding to our position if the $850 level is reached and maintained for a period. In the meantime we are giving serious thought to buying at today’s levels and playing tops and bottoms if it becomes evident that, say over a period of two weeks that there is buying support within the range.

    We remain confident that gold will break through the $1000 barrier and, subject to the expected corrections, power up to $2000 plus when it becomes apparent that Western economies will run out of short term fixes within the next two years.

    We should also add the rider that if the US, UK and Europe show signs of decisively fighting the consequences of their current politically inspired inflationary policies by putting interest rates up very substantially, we will bail out of gold ¨tout suite¨.

    As an afterthought, should your analysis prove correct it will provide a great opportunity to load up on the best of the senior miners as there always seems to be an over reaction when gold moves, particularly downward, and that extra leverage they provide can open the door to added profits when the market reverses back up.

    One thing we are sure about is that your post will give our visitors a great deal of thought as it has to us, and that is one of the principal purposes of this investment site.

  4. David Oldham says:

    Thank you John for your response to my comments.

    I chose the technical analysis path some years ago simply because I have engineering blood in my veins thicker than my economics or accountancy blood. I couldn’t be bothered to study reams of reports and accounts to enable an investment decision to be appraised. Short of having access to Warren Buffet’s confidential opinions or those of George Soros I am one who needs a map to work with and the charts provide me with exactly that. Just as if the fog comes down when I am in my little boat in the middle of the channel I need my navigational and radar skills to survive, let alone prosper :-)

    I would not dream about debating with you the merits of techs versus fundamentals when it comes to your particular specialist expertise. I am sure you have been tracking the PM’s far longer than me. I have only been trading gold (and buying the real stuff as insurance when profits permit) since about 03 at $350 ish. Our now “great leader”, ha, Gordon Brown and the then BOE governor Eddie George presided over the selling of our reserves. I thought that was pure folly and yes they managed to sell at a low of around $250 ish. That is what first caught my eye and resulted in adding gold to my trading portfolio.

    If supposed highly paid experts in economics and world markets can make such a monumental bosh of finding a good price for our gold reserves, then what chance have I of making good fundamental decisions. This tends to be my logic :-)

    I love reading you. You are about as bearish as bears can be when it comes to the follies of the Greenspan era and the UK Brown era and the oh so predictable mess we now see. An almighty mess the inevitability of which was a dead cert as far back as 98. I have been a big ugly bear the US and UK economies since 98 but I have to be unbiased with my trading.

    If you glance at some of my previous comments again you might notice some ifs and buts to my counts. The point of having my technical map is to listen to what the mkt is telling me and trade it accordingly. If so and so happens I buy and if so and so happens I sell. That is the only way I can trade and with great discipline always knowing where to logically place stops into the market. If my count is violated I know I was wrong and am out in a flash and ready to reappraise. I dont mind being wrong. It happens all the time :-)

    I absolutely agree with you about the lagging potential in miners stocks versus spot gold price. I am definitely looking at that for when its time to buy again and I have little interest in finding shorting set-ups in the meantime. Only if gold goes down to a certain level that I described would I start to think shorting opportunites. I do beleive it could turn up at any time. It doesnt have to hit my next support level at 798 ish but if it does and it bounces there then I get great satisfaction from getting my job right.

    I’m afraid I have elliott wave pattern recognision in my blood. RN Elliott died in 1946 but his work is still valid today, albeit in modified form and having to cope with markets which are constantly changing, not least in the last 10 years or so when mutual government cooperation and manipulation has become rife. I do beleive there are pros and cons to all things but for me I cannot be a fundamentals trader or investor. I would be wrong the whole time. Like I built a high tech all singing all dancing new factory in Oxford just ready for the UK 89 to 95 recession. Next thing that happens is some cretin name of Lamont thinks he can buck the currency markets instead of devaluing 9 months earlier and I end up paying 17.25% on heavy borrowings and watching my traditional markets quickly dissapear. That unfortunate decision timing cost me almost a lifetimes work. I could go on :-)

    Roll on the reversal back up I say. I would be very happy to trade gold up to the 2000 level you eyeball. Its my beleif that we now know approximately 25% of the extent of damage resulting from the sub prime bond and credit rating debacle. The crisis is still in its infancy. I also think we will bump from quarter to quarter with the stock markets for the next year or two at least. The usual irrational rallies will play inbetween the plunges down to deeper and deeper levels. I feel it will take years for confidence to be restored in our corrupt and irresponsible financial systems before the banks get back to anywhere near returning to normality. I just hope we will see recession rather than depression, for the sake of young people and the innocent in all of this.

    The deception has been formidable and the likes of Greenspan and Brown have encouraged it and facilitated it. Those two gentlemen really should be sentenced to death imo. And as for banks and mortgage lenders, to produce “liar loan” sub prime products was the height of folly and greed. And then the credit raters apply aaa ratings to the junk bonds. I mean, well, what do we all deserve for this rotten society. Several years of recession at the very least I would think.

    Final comment, I think if you look back historically you will find that gold has tended to do well in rising stock markets and poorly in recessions. Even looking back as far as 1928 is interesting. So we cannot totally rely upon the “safe haven” market for gold. However, with the correlation with currencies and crude prices etc etc the relationships are too complexed for me to attempt any neural analysis. That means back to my lovely charts and what they are telling me:-)

    Ok, the rant is ended, phew :-)


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