Gold: 4 Reasons to be Bullish
In my opinion, this is the best opportunity to buy gold in several years.
One, it’s all about the fundamentals. With interest rates low and heading lower (10 year Treasury is under 2%), this is gold positive. (See this article from December, 2011.) Furthermore, with the global economy in recession, interest rates will likely continue lower as central banks come up with new ways to keep the cost of capital cheap and to keep the “balls in the air”. Until proven otherwise, central banks will respond to crisis with money printing.
Two, over the past 10 years the best time to buy gold was when there was Dollar strength. But even then and over the past 40 years, the relationship between the Dollar Index and gold hasn’t always been inversely correlated. Let others think that a higher Dollar is bad for gold prices. That is the prevailing dogma, and like most market dogma, it is wrong. To me, the Dollar is a non-factor in the gold equation.
Three, the technicals have turned positive. 3 days ago, I am writing about the divergence of price from the fundamental picture, but over the past 2 days, it appears that gold is putting in a double bottom. See figure 2 a weekly chart of the SPDR Gold Trust (symbol: GLD). Price is currently testing the 153.12 key pivot point. This is support and the dip below this level likely cleared out the weak hands.
Figure 1. GLD/ weekly
Four, this is a low risk set up that is well defined. With support at 153.12, the play is rather simple. A weekly close below the 153.12 level would be reason enough to move to the sidelines.
Category: Gold
Isn’t that a long term pennant continuation pattern in both gold/silver? Given USD sentiment is at very high levels, it would appear that gold is in a buy zone.
Spud
Thanks for the comment
I guess you can call it a pennant but I am unsure of the significance; nonetheless, I think the important thing is that this represents a low risk entry point in an issue where the fundamentals are favorable
I should look at Dollar sentiment and how it relates to price movement in gold
With regards to Dollar and gold, over the past 10 years bullish trends in the Dollar have been the best times to buy gold; prior to that, I find little inverse correlation between dollar and gold despite the market dogma
Here is where I found the USD sentiment. It suggests the USD is due to take a breather, which could coincide nicely with a rise in asset classes against current trend.
http://blog.kimblechartingsolutions.com/2012/05/joe-friday-dollar-hitting-resistance-line-as-bullish-sentiment-almost-reaches-the-80-level/
Isn’t the sentiment indicator flashing a buy signal yet? I see a number of reasons for a temporary S&P bounce here.
USD Index Sentiment
AAII 23% Bulls
Put-Call Ratio at 2 standard deviation high
Demark 13 Buy Countdown (Monday if close below 1308)
200 day MA at ~1280
Spudster:
the data for the sentiment indicator comes on weekend; even then it tends to lead price by a week or two; so we will see what the data shows this weekend
Rydex data has been unusually bullish here (bear signal) and really has yet to unwind
Double bottom? Gold is in a bearish descending triangle topping pattern on the very chart you post. It will be time to buy but now is not the time, we need, the washout, the conviction that makes even the most feverish gold bull question their position. At that point of capitulation I will be a buyer. I think that point will be sometime this year.
Mountie Fan:
thanks for posting….your descending bearish triangle is the other reader’s pennant…I am not sure what to make of these patterns as I am unable to quantify
regardless of what we call it, I still think this is the kind of low risk set up we should be looking for
right, wrong or somewhere in between….whatever you do, have a plan and execute it
#5 Silver is usually a little ahead of Gold and moves harder! Its up big last 2 days!!! Go for a DEC SIZ12 spread 2-3 bucks. Leg in on short side or set on both now. looks very good!!!