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Gold’s Demise!

Commodities / Gold and Silver 2012 Feb 15, 2012 - 07:11 AM GMT

By: UnpuncturedCycle


Best Financial Markets Analysis ArticleThe media drones on and on like some empty, faceless, meaningless noise, and that’s on a good day. On a bad day it’s like fingernails on a blackboard; this horrible shrieking noise that never let’s up. When I grew up I caught the tail end of Edward R Morrow, a chunk of Walter Cronkite and most of Huntley & Brinkley, and it was still news mixed with a lot of truth and little or no effort to shape your thoughts. Now it’s all about numbing your brain and getting you to buy some worthless piece of garbage that you really don’t need anyway. The financial news is more of the same and the “garbage” they are selling are paper assets. Anything that gets you to do that is good and anything that takes you off of the chosen path is bad. Stocks are good; gold is bad! It’s as simple as that.

Of course I demure and I suppose it’s genetic. I suspect I come from a long line of folks who spent considerable time tilting against windmills. Some were rewarded; most weren’t. I view gold not as some smoky fantasy involving riches beyond my wildest dreams, but as a way to protect myself and my family from a future fraught with peril. In my lifetime there have always been beacons in the darkness, and you could choose to walk toward the light or not. Today with the exception of Ron Paul, there are no beacons. The truth is the enemy and any truth teller needs to be humiliated into submission. If that doesn’t work you accuse him of terrorism, lock him up without benefit of council, and throw away the key. When the government goes after you the very first thing they do is seize all of your assets, everything, and then they put in a “trustee” to oversee those assets. You are penniless and no lawyer will work for free. Often the trustee will use your assets to prosecute you! The US Constitution is but a distant memory.

Gold, assuming I can hang onto it when they come to knock on the door at 4 am, will allow me the freedom to live in decent comfort until thing get better. My only downside risk is that governments stop printing and live within their means. I don’t know of anyone who believes that and it won’t happen anytime soon. I wish it would but I can’t live on wishes and neither can my family. You can’t either.

That’s my take on things but I am in the minority. Unfortunately most people who invest in gold are fearful when they should be bold and bold when they should be fearful. They are champions at throwing in the towel at precisely the moment you should buy. I suppose that’s due to the reason that gold is the only market I can think of where both fear and greed can be present at the same time, and it is an extremely manipulated market. Let’s take a look at the current situation and I will expound:  

In July 2011 gold rallied from 1,478.30 to a new all-time high of 1,923.70 in September of that same year, and it was impressive to say the least. Then gold corrected all the way down to strong Fibonacci support at 1,522.20, stopping at 1,523.90 in late December 2011. Since then gold has retraced slightly more than 61.8% of the decline stopping at 1,765.90 eight days ago. The decline required eighty-one days to fall a total of 19.7% and required just 23 days to recover almost 64% of what was lost. That is a sign of strength and not weakness in case anybody is interested.

Now I want to look at what’s happened since gold hit 1,765.90 just eight days ago. In five sessions gold fell from 1,765.90 to a low of 1,706.40 and that is a 24% retracement of the latest advance and mild by any yardstick. Yet I have clients who liquidated and I have clients who shorted gold recently because the “evidence points to a decline down to 1,640.00”. On the other hand I postulated in my weekend report (published Sunday) that gold had one of three options:

  • There is a fifty percent chance that gold remains above 1,723.60 on a closing basis and then rallies.
  • There is a forty-four percent chance that gold revisits the 1,709.40 support for a third time early this week and then rallies.
  • There is a five percent chance that gold could dip down to strong support at 1,694.50 and a one percent chance that it could fall as low at 1,667.50.

In reality we’ve seen a mixture of the first and second as gold closed on Monday at 1,724.80 and dipped as low as 1,711.00 this morning but is back up at 1,725.00 as I type. Every time gold dips down to 1710.00 buyers jump in and that is a sign of accumulation.

Silver has been lagging a bit over the long run but seems to be acting better than gold with respect to the current reaction as you can see here:

Silver has rallied from a low of 26.15 on December 29th to a high of 34.52 on February 8th and it’s decline is either two sessions or four depending on where silver closes today and each fall in price has been shallow. The overall reaction has yet to exceed 10% of the rally as you can see above.

Gold continues to act well and this is in spite of attempts to pump up the US dollar over the last three sessions. When gold first turned down last early last week I said the decline could last three/four session, or seven to nine sessions, and would not exceed 5%. A five percent reaction would be an 85.00 decline down to 1,685.00 are we never came close to that. Today would be the seventh day down assuming that tomorrow or Thursday would produce a final marginally lower low but I suspect the low is in. In any event there is nothing in the past eight days that justifies abandoning your position, and only those seeking to throw away all their money should short gold.

Giuseppe L. Borrelli

Copyright © 2012 Giuseppe L. Borrelli

- All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

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