Gold – A Buying Opportunity

July 22, 2008 | By | 1 Reply More

Gold and silver are looking set to continue moving up over the next few days mainly due to oil firmness with hurricane Dolly (maybe) disrupting supply in the Gulf of Mexico and a deadlock in the Iranian talks.

Add this to the continued weakness of the dollar and only hot air from the Fed that does nothing to give us hope that the economic woes of the US are being addressed must surely raise the expectations of us gold bulls that the yellow metal will shortly break through the $1000 an ounce barrier.

With $950 looking like strong support and the current volatile nature of all markets it is possible that buying opportunities will arise at around $15 down on Mondays close but I would not bet on it.

Our take is to follow the trend and take some short-term gains in our GDL position and look out for the inevitable pullbacks to replace our sales until $1000 is breached. Just going short may be a dangerous game!

On a more worrying note, Mr Paulson has been quoted that a global recession is on the cards. This has backed up the reservations we have expressed twice in the last fortnight about the prospects for PGMs as they continue to slide.

We hope that our readers took the time to research the issues and to come to the conclusion that it was time to get out of the PGM sector.

We expect PGMs to recover after summers end but it is likely that further falls are on the cards before a bottom can be called.

The catalyst (no play on words intended!) will be the escalating cost of precious metal production, lower output, power problems, and political and labor difficulties.

Despite a threatened global downturn, platinum, palladium and rhodium, essential components in automobile manufacture, are in a developing situation of demand outstripping production and diminishing stockpiles.

Recession or not, the Chinese and Indians are ramping up their auto manufacturing capabilities to supply their own rapidly growing domestic markets.

Realizing that there are more Indians now enjoying a middle class lifestyle than the total population of the US is surely food for thought!

Uranium keeps trying to break out without success, we got caught out and are still looking at our holdings in Denison and a couple of Australian miners all showing a loss of over 20% since we plunged.

While we are still dithering whether to cut our losses we live in hopes that sooner rather than later the world will accept that there is no viable green alternative to nuclear to satisfy the ever-growing demand for electric power.

All the wind generators, hydro electric plants, solar panels, wave machines combined can over the course of time do little more than scratch the surface of worldwide electricity demand.

Another worrying and somewhat contradictory situation has arisen within the mining sector. Junior miners of every hue are down, investors have taken fright as the price of gold, silver and PGMs have fallen from their peaks and fears of rising costs, etc. etc., have also taken their toll.

At the end of the day the resources they are seeking to unearth nearly all enjoy a scarcity value, and the majors are still on the lookout for likely M&A candidates. At current price levels there are some potentially hugely profitable plays awaiting the patient speculator.

Remember that this junior league of miners can produce profits of up to ten times the initial investment. Even more is not a rare occurrence.

This is a very good time to be unearthing some hidden gems in this industry, and realistically, if you get wrong four times out of five, you will still come out with a very healthy profit.

 

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Category: Review

Comments (1)

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  1. david says:

    John, when I last commented on the technical position of gold I expressed surprise at its reslience from the 850 area. I had been looking for the correction to visit around 798 and bounce well from there. If that level had been breached then I was looking for 750 ish as last support symmetry for bulls.

    We now see a lot more structure in place on the charts.

    From the 846 low in early May gold has done 3 waves up to 989 in mid July. The retracement since then to 916 is a little more than 50% of the third wave which is about what I would expect for wave 4 before we go back up in a wave 5 to exceed the 989 high and probably finish the series at around a test of the 1034 high back in March. If the count is true the 5 series would constitute a wave 1 up from the 848 low. I would then expect a wave 2 down making a retracement of about 50% before resuming the bull trend into a massive wave 3 up to who knows where. This is my preferred count for a bullish scenario for gold.

    There are always at least two alternate counts just to spoil our fun and ensure that this stuff is never easy :-)

    The bearish technical position is as follows.

    The 3 waves up I describe could be a completed corrective series which would be confirmed if the 859 pivot low were breached. Should this happen then my more recent symmetry projections would still be targeting a similar area to before. I have 801 for a likely low or beyond that a lower target at 750. The 750 area should not be breached for the higher bullish timeframe. From either of those levels we could see the mother of all bounces with the bull trend well and truly re-establishing itself up to way beyond the 1034 high.

    Traders will know the term “bracketing”. With this current technical picture I would bracket for a long position at 990 (or 978) targeting a retest of the 1034 high. i.e I would employ a trailing stop to let the market take me flat as I am on alert for the completion of a wave 5 of wave 1 up.

    If from here the market continues down my short bracket would be at 858 (or 874) with a target at 802 ish. This is the best I can do until the technicals further develop to reveal which of the counts is valid.

    I do have a third count which would be more bearish for gold than I care to contemplate at this time. Should price get to the 750 area and fail to hold there the third count would become relevant.

    I exited a long term position just below the 1000 in early march and I have since been stood aside awaiting the mkt to tip its hand for the next longer term play. I now have enough information to make some shorter term trades while we await the needed confirmation for the higher trend. Is the higher timeframe still bullish or has it reversed ? Wish I could answer that one but I can’t, not yet.

    If the market goes back up from here to complete a 5 wave series from the 846 low in early May then I know the higher timeframe is back on bull course. If instead we go down to take out the 859 low then I am none the wiser until it tests my lower symmetry levels.

    I like to read your fundamentals commentary John to attempt to align it with what I see on my charts. Its interesting that we are both in a state of limbo for the likely direction of gold prices near term but I suspect this will become a lot clearer quite soon. If you would like to see my chart please drop me an email :-)

    David.

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