Monday, April 13, 2009

For Gold Bugs, Patience Is A Virtue

The "big picture" in Gold can be visualized with the weekly chart. Please click on the chart to enlarge.

In September 2007, Gold broke from a 16 month correction and consolidation of the May 2006 $730 high in Gold. Gold subsequently ran higher from September 2007 until reaching a new all-time high 0f $1032 in March of 2008. Over the following 13 months now, Gold has corrected and retested that September 2007 breakout in Gold. Gold has also consolidated the gains in the price of Gold from September 2007 thru March 2008 over the past 13 months by retesting the $1032 high in February of this year.

I would suggest that Gold is presently in the throes of a Bull "shakeout" by the perma shorts [aka the Gold Cartel]. A Bullish flag pattern is developing in the present uptrend off the October 2008 low that is similar to the Bull Flag in the Fall of 2007 [circled in green]. If you recall, that Bull Flag was just a pause in Gold's uptrend at that time. I predicted at that time that a resolution of that Bull Flag to the upside would have folks wearing Gold for St. Patricks Day 2008. [Little did we know at the time that Gold would "top out" on St Patrick's Day as the first of the US Government banking interventions was announced as Bear Stearns went up in Smoke.]

Today's Bull Flag is supported by all the buying in Gold that took place in the low 890s in late- February and early-March this year. The Indian market that has been suspiciously absent for most of the first quarter, is now sensing a new floor in the price of Gold here at the 65 day moving average and also providing support for the market.

MUMBAI, April 6 (Reuters) - India's demand for gold has revived, with the country importing small amounts for the first time in two months, and is seen strengthening with a festival falling at the end of April, dealers and traders said on Monday.

India's demand for gold revived when gold broke below the psychological level of $900 an ounce on Thursday and some dealers said they had placed orders overseas to replenish stocks.

Key support in Gold now lies at $850, which, coincidently, is the top of the 2007 Bull Flag. Looking forward, a break of today's Bull Flag at around $920 has the "potential" to propel Gold the rest of the way higher on this current Bull leg of the October 2008 lows. Bull Flags usually signal the "half-way" point of a Bull leg...just as it did in 2007. If a repeat scenario were to occur regarding today's Bull Flag and a subsequent breakout at around 920, Gold would be "projected" to peak next at $1244.

How do we get this projection?

October low = 681

February high = 1005

Projected breakout = 920

(1005 - 681 = 324) + 920 = 1244

Projected in linear time, should today's Bull Flag be broken at around $920, we should see the $1244 projected high by the end of August 2009. It would not be unexpected, should this Bull Flag scenario play out with a $920 breakout, that a new All-time high in Gold could be established around $1050 by Memorial Day 2009.

Of course, this projection is ALL an educated guess...and completely ignores the CRIMEX and the games being played there. But my hunch all along has been that those games are nearing an end. And though my bold prediction of a default in Gold at the CRIMEX by the end of April 2009 may not come to pass, one must consider that it may have been narrowly averted earlier this month by the "possible" ECB bailout of Deutsche Bank shorts on the CRIMEX the week of March 31, 2009. [See story here: ]

For Gold Bugs, patience is a virtue. See the Big Picture for the bigger story.

No comments:

Post a Comment