Monday, March 13, 2006


Gold Stronger On US Dollar, Technical Trades

Market Watch has the trading numbers. "Gold futures closed Monday with a gain of more than $6 an ounce, recouping part of last week's losses of nearly 5%, as some weakness in the U.S. dollar and ongoing tension over Iran's nuclear-refining program helped renew investment demand for the precious metal. 'The marginally weaker dollar, coupled with the relentless violence in Iraq and the 'in-your-face' defiance emanating from Iran ... are keeping gold bugs on the alert,' said Jon Nadler, an analyst at bullion dealers"

"The April futures contract rose $6.20, or 1.2%, to close at $547.50 an ounce on the New York Mercantile Exchange, marking its highest session-ending level since last Tuesday. The contract closed Friday at its lowest level in more than two months, down 4.7%, or $26.70, for the week."

"Prices are 'drifting' between support that Nadler pegged at $530 to $540 and resistance around $550 to $552 an ounce. 'We have to get some momentum behind it [or] else we sink lower again,' he said. For the moment, the $535-to-$550 range 'appears to present the path of least resistance,' he said."

"The dollar's recent strength 'has certainly been one of the contributing factors in gold's six-week decline,' said Dale Doelling. However, Doelling sees the dollar as having reached 'an extremely overbought condition,' raising prospects for what he said could be 'a significant decline..just the tonic for what currently ails the precious-metals markets.'"

"May silver rose 19.7 cent to finish at $10.157 an ounce. June palladium tacked on $11.30, or 3.9%, to close at $300.90 an ounce and April platinum added $10.40 to finish at $1,023.10 an ounce."

The technical situation. "The spot price of gold rose marginally on Monday as the metal staged a technical recovery from the weakness seen at the end of last week. Analysts and traders said that gold was well supported at current levels. 'Gold is getting good support at current levels and is holding above the lows of last week,' UK-based analyst James Moore said."

"'The increase in the gold price is largely technically related and after holding the mid-$530s/oz, gold has seen a technical bounce. However, gold should find resistance between $548.50/oz and $550.50/oz. Gold should maintain its level in the $540s, but should resume its decline later this week,' a London trader commented."

"A European trader said that physical demand for gold seemed to be supporting it. However, he expected the metal to decline to between $525/oz and $530/oz in the foreseeable future. 'Gold is a bit higher on the weaker US dollar, with gold trading in a range between $540/oz and $545/oz. There isn't much interest in gold today,' a Johannesburg trader said."

"There was good support for platinum between $995/oz and $1,000/oz and platinum should remain above this level for the foreseeable future, Moore said. Rhodium last traded at $3,640/oz, just off the metal's recent long-term high of $3,675/oz."

Here is the Elliott Wave technical read from tonights short-term update. I only get a couple more of these. "Friday’s $533.30 low in spot ($534.50 basis April) marks the bottom of five-wave decline in Gold. The rise from Friday’s low is wave ii and has carried to just shy of the $550-$560 area (basis April), which is resistance. Prices may still poke up into this range in the coming days, which, if it occurs, should mark the top of wave ii. Coming beneath $540 in spot ($539 basis April) would be the initial signal that wave ii is complete and wave iiiis unfolding."

"Wave 2 up in May Silver is just about complete. The pattern of the corrective rebound is a double zigzag, as seen in the above chart. Today’s $10.18 high tags the bottom of the ideal target for the wave 2 top of $10.17-$10.21. This area is where the second zigzag would equal the first wave y would equal wave w, the .786 retracement of wave 1 down, where within the second zigzag, wave (c) would equal wave (a), the upper trendline of the parallel trendchannel formed by the wave 2 rise and the down-sloping trendline drawn of the waves i (circle) and ii (circle) highs."

"This is as strong a resistance area as can possibly be formed, so if prices exceed it, then new highs will be seen. Our interpretation is that prices will not exceed resistance, but instead turn down in wave 3, which should draw silver to the area surrounding the $8.95 level, the initial downside target."

the EWI stuff would be better with the charts, but hopefully you get the idea.
No offense, but this EWI stuff would be better if it had one iota of provable performance history behind it. Technical analysis has never (ever) proven remotely predictive on average.

Those who believe in charting or that past performace is an indicator of future returns should read "A Random Walk Down Wall Street".

(Which provides the underlying rationale behind the one single fact Wall Street would most like to keep hidden: That exactly half of all analysts don't beat the S&P. And that winning analysts have no greater chance of winning the next time around. ...And that monkeys throwing darts at the stock pages result in stock picks that perform equally well)

What *does* work is sector analysis.

Sector bets are based on strategic analysis, geopolitics, and a host of other non-quantifiable but occasionally predictable phenomena.

My 2 cents.

Actually its the same 2 cents as loads and loads of bankers, but the wave-theory guys seem to stick around all the same...

I'd love to be disproven by the way. Because the idea of looking at a chart and divining the future of an equity sure would be cool. But then again, so would turning lead into gold.
I take no offense, because I don't have any position on EWI. They gave me a free subscription for a month and I thought I'd pass along what they discuss. I have read Prechter's first book and learned some things from it. I'll be happy to send you a copy.

I have a minor in economics, and I could say the same thing about fundamentals. No theory seems to explain things anymore; notice the abandonment of M3, which the entire financial media used to hang on like it was the most crucial number. Milton Friedman got a Nobel prize for 'proving' an increase in money supply was directly responsible for inflation, yet in the 90's money was created like mad and inflation fell, and gold dipped under $300. I can't explain it, but as a blogger, I can try to open up the discussion about what should be watched.

I don't know what the predictive value of technical analysis is, because I've never seen a comprehensive look at that. I can say this; if the big boys had a method that worked, they wouldn't tell you or me. As I've said, the most interesting thing about fibonnaci analysis is the hour by hour or day by day stuff. Lots of outfits do fibonnaci, not just EW. And they don't all agree.
Ben - Well said!

TJ - In response to your question 3/9: I'm on the sidelines still. I expected the recent gains, and we'll probably see some more. Maybe to $555-$565. Gold is still slightly overbought IMO and, lacking a catalyt could very well fall to $525-$535. If so I'll be buying. I truly believe it's all tied to oil right now (gold, equites, inflation) and I'm having a hard time figuring oil out as of late. I think today was a suckers rally to $63

It is in no interest of the US Gov't and OPEC to have oil above $65, and I think we'll see them do everything in their power to suppress the price (already happening)

All bets are off after the mid-term elections, and then gold starts to take off again IMHO. $600+ regardless of oil.
I did sell half of my gold ETF position when it was $560 because I wanted to cover margin. I'm still hanging on for the long haul especially with physical holdings.

Technical analysis is interesting. I tried my luck with trading based on propritary version of it in 2004, 90% of the time it was wrong and the other 10% was such a small increase. I've been meaning to implement this again and just do the opposite trades. The market behavior could have been specific to the 2004 timeline so who knows if I can remain consistent.

Again, this is just gambling, and only a small portion of my portfolio goes to speculation.
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