Gold Trapped In Price Band

June 16, 2008 | By | 3 Replies More

Gold remains trapped in the price band of $850-$900 an ounce but seems set to bounce off the lows for the time being.

We expect a degree of volatility within the band and that will give opportunities for quick in an out trades. Just don’t be caught short of the metal when it makes its expected break to the upside.

 

Nothing is likely to stop it reaching $1000 an ounce by the end of the summer!

Despite a lift in the dollar index do not expect that to last.

If, and what a big if, the Fed raises rates to a level that will seriously impact on the decline of the dollar, the resultant consequences for the ‘man in the street’ will be disastrous, the consumer, small businesses and even the mighty corporations without substantial overseas involvement will suffer leaving only commodities, both hard and soft as the only remaining safe havens for money.

Of these, precious metals will be the safest investments of choice as they are not subject to crop influences that cannot be controlled by man.

On the other hand, if cheap money and overworked printing presses remain the order of the day, inflation will become uncontrollable if it hasn’t already.

That then leaves exactly the same options open to the savvy investor- commodities.

Either way it is bad news for stocks so be very, very careful not to be left out!

 

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Category: Review

Comments (3)

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  1. David says:

    I have been surprised at gold’s resilience to correcting down to around my previous suggested target of 798 ish, whereat lies some strong technical support for those of us tech nuts who trade in such manner :-)

    I am still stood aside the shorting opportunities waiting to see a break below the previous lows or alternatively a break above the 950 ish level at which point I re-enter long for hopefully a longer term position trade once again.

    I cannot bring myself to short the metal as I strongly agree with you John on the fundamentals. Perhaps I may regret in due course but right now your comments re the Fed’s predicament with inflation versus recession (or even total collapse) is proving to be way beyond the control they once had with their rate weapon.

    I think we may well see the day when the Fed become utterly sterile and superfluous, a condition which would be wholely predictable and wholely deserved but unfortunately would be to the detrament of all who liveth on this planet.

    In situations like this I have to remind myself that a few months or even a year or two in the markets can be no time at all. When the procrastination ceases we will see a very nice trend develop once again. Its really just a case of the mkt pointing its finger at direction lest we be tempted to pre-empt.

    The nice thing for us nasty techies is we don’t need to get married to any particular fundamental opinion. More simply, just go with what the mkt is telling us. The charts reflect the sum total of opinion and have done so since time began. Distortions both ways are all built in and for some reason I cannot fathom the recent phenomenon created by the commodity long only (roll forward) stock index traders became spent out with gold. Probably just a temporary need for emergency cash to stave off insolvency. The next significant event will doubtless be their regulation and then perhaps the mkts will change again. Who knows ?!

    David.

  2. John says:

    Hi Dave

    Thanks for another insightful take on gold’s action. As you may recall I have been bullish on gold for a considerable time but must admit to having a moment of doubt last week when I sold a third of my holding in Streetracks ETF to pocket a decent profit and thinking that I should be able to get back in around the $800 level.

    Looking at the price action of the US markets last week and so far this week, I am getting the impression that reality is at last dawning with ever lowering prices to be expected into next year across the broad marketplace.

    That should be good for gold but will the pressures of accelerating losses and diminishing investor sentiment spill over into hard commodities and consequently lessen the appeal for gold?

    I don’t think so and I hold to my opinion that gold will continue to trade more or less sideways before breaking out in the late summer with $2000 in it’s sights any time in 2009.

    The question that remains for me to decide is when to begin buying again

    As I write I am thinking that patience may reward me with a short term pullback to $850ish in the next 8 weeks as holiday spending takes precedence over investing, even amongst the pros.

    Interesting to note your reference to regulation. If the US is tempted to impose restrictions on forward trading in commodities to cut out the speculators (that is politically inspired to pass the buck), will it be all embracing or be confined to say oil and softs?

    With modern technology and global markets I doubt that such a move would prove wholly effective and should be easy for determined traders to circumvent.

    In the current economic circumstances, I would say that it is impossible to do anything more than best guess on the social consequences to those US and UK citizens particularly who will have to adjust their lives radically to the dawning era of shortages and rising prices for essentials unknown to anyone alive today.

    With that in mind how accurate do you expect the technical indicators to be in guiding investment strategy when they are based on historical movements?

    Having said that I do like short term trading the FTSE based solely on candlesticks. In and out within half an hour is more often than not rewarding.
    Anyhow my Grandfather always said that “it is impossible to destroy capital”, but then he was unaware that the unthinkable should happen. Off the gold standard and printing presses full steam ahead!

    Great to hear from you and I look forward to your comments, or anybody elses, on my little rant.

  3. David says:

    John,

    quote:
    ” With that in mind how accurate do you expect the technical indicators to be in guiding investment strategy when they are based on historical movements?” unquote.

    Yes I agree with your thoughts and these days I find myself constantly reminding fellow traders that we must expect the unexpected to a far greater degree than ever before. The “noise” in the markets increases and makes for a greater challenge than ever before.

    On the plus side we have the evolution of electronic trading making the playing field ever more level in lots of ways. On the down side we have powerful forces of manipulation, evil and plain incompetance getting their wicked way all too often.

    I must say that I do not envy elliotticians trading daily, weekly or monthly timeframes. Much has changed with market behaviour since RNE died in the mid 1940’s and for me the most value is found in pattern recognision and volume studies on smaller timeframes.

    If one can find entries on smaller timeframe bias there is always the chance of getting caught in a serious break for a long term trend move. The trick of course is to lock in profit as ya go and always know at what point to cover the whole position if an important level is violated. Volume speaks volumes in real trend moves and can help enormously with trade management. Trade management is the key to consistant profitability for traders.

    I have a tremendous interest in fundamentals but in a very broad sense. It can take so much longer than one might expect for a correct opinion to actually be reflected in the market and timing is everything, particularly for those like myself with limited resources.

    I think I use my fundamental opinions to make choices in which specific markets to attempt to trade and then try to become expert at knowing how that market tends to behave from a technical perspective. That then gives me a set of parameters and a set of rules by which to trade. If the general character of the instrument changes then I have to either quickly adapt or move on.

    Oh that I had the Waren Bufett midas touch or even 1% of his expertise and 0.0001% of his account size:) I am hoping that you John have a good handle on the fundamentals of the your niche and I wouldn’t be visiting your commentary if I didn’t have confidence on my own “incredible” insight for selection of instruments to trade in the next few years :)

    The niche is particularly interesting at this time with PM’s being subject to “safe haven” speculation/investing/trading in addition their industrial and commercial demands. It is that facet which attracts me to your insight for the large picture global mess and the likely consequential damage we are now starting to witness.

    I saw a comment recently that forecast we will see $10K/ounce gold. That might take some time methinks but I would be happy with the $2K target in my sights once the present beer stop is exhausted.

    Thank you for your further comment John. In most ways we are on similar wavelengths. Its just the technicals that stand between us :-) If I were a richer man I would sit on my yacht and manage investments and expect to employ great patience with some of the positions.

    Dave.

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