Tuesday, February 16, 2010

Gold and Metals Moving Technically

One might think that with the EU kicking the Greek can down the road till next month and the Euro trading a bit stronger against the USD, that gold would not be rallying. But it is, on top of a rise in Presidents' Day trading. It is impressive that on a percentage basis, it is up almost as much as its more volatile friend silver today, and a good deal more than the stock market averages. Given increasing evidence that China could be on the verge of a bursting credit and property bubble, and given prior evidence of massive speculation in base metals by individual Chinese, all non-monetary metals-- which means all metals except gold--could be at significant risk for price declines without warning.

Meanwhile, here is a chart from the technician Clive Maund (http://www.clivemaund.com/), showing his analysis of gold. As I write this, Kitco reports spot gold is about $1115 per ounce. A close above here and then a close above $1120 would suggest a breakout.
Longer-term charts of the GLD ETF suggest that since the 50-day smoothed moving average of GLD has turned downward (though remaining well above the 200 day sma), some price churning is likely in the months ahead, with my view that the addiction of governments to unsound credit creation implies an upward bias to the gold price.
Also supporting churning rather than a brisk breakout to new highs is the proliferation of ads for gold on TV.
Obviously there is inventory and profit margins.
Nonetheless, unlike the Internet stock scam of a decade ago, "they" can't create new gold the way they created stock offerings. Despite all the creation of new stock supply, the NASDAQ Composite rose almost fifteen times in one decade between the 1990 recession low of 344 to the March 2000 bubble high of about 5100.
From its 1999 and 2001 double bottom a bit above $250 per ounce, gold is up about 4 1/2 times. Even if gold were to double quickly, it would still be underperforming the NAZ bubble.

Not that I am either predicting a gold bubble or advocating that one invest or speculate that one will form.
Right now, it is easy to see GLD bouncing to the top end of the $107-113 range suggested 2+ months ago, when it looked toppy at $119 as was mentioned in this blog in real time. Should that occur, selling covered calls on GLD for the non-core part of my gold holdings may be attractive.
But that commentary jumps the gun quite a bit. On a closing basis, gold remains in a correction and for all we know is in for another almost 3 decades before it gets back to its recent peak price.
Copyright (C) Long Lake LLC 2010

1 comment:

  1. A bubble in, say, shares, stocks or commodities happens when people believe it will "go up and up" (and is, as a rule, as with housing recently and "tech" stocks at the beginning of the millenium, again mainly driven by money inflation). Gold in contrast is a hedge against inflation and against looming sovereign defaults. Inflation by definition is the increase in money supply. There's no doubt that this has happened several fold in only two years. So there is inflation. Hence there is no gold bubble, as gold has not appreciated by a tenth even of what the monetary base has expanded!