Gold’s Bearish Pattern Trying to Change

When we last left off with the gold market (and the chart below), I offered that “Unless the metal quickly regains the $1350 level, we are most likely looking at further selling and even more record setting negative sentiment before a sustainable rally can begin.” 

 

Gold continued its collapse from the time I hit the send button at $1292 all the way down to $1179 a week later. From $1179, it rallied all the way back to $1303 this morning before Ben Bernanke testified before Congress as you can see below. 

 

In this market I usually mention possible upside and down targets. If the current rally peters out, $1150 and then $1087 are logical downside lines in the sand based on technical measures. On the flip side, there are a host of upside zones which should be watched over time, $1350, $1480 and $1540. Since my view hasn’t changed that gold remains in a secular bull market, but cyclical bear market, I do believe that all upside targets will be achieved and that the ultimate peak will be above $2000. 

Taking a view beyond the short-term, we continue to see record setting levels of negativity, surpassing those seen when gold was $250. What that means is that smart money is and has been accumulating gold on the way down as the dumb money has been selling. So the dumb money has been right and the smart money has been wrong, something that is unlikely to continue. At some point sooner than later gold is going to hammer out a major bottom and rally strongly and not stop, trapping the bears and inflicting pain.

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Gold Skeptics Have Peaked but Gold Prices Haven’t

The other day I spent some time with my friends at Yahoo Finance recording several segments. Here is the one I did on why I have become more bullish on gold recently after watching the metal fall from $1900 to $1320.

http://finance.yahoo.com/blogs/breakout/gold-skeptics-peaked-gold-prices-haven-t-paul-155320270.html

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What would Thomas Jefferson Say to the Architects?

The latest Street$marts is out, “What would Thomas Jefferson Say to the Architects?” http://www.investfortomorrow.com/newsletter/CurrentStreet$marts20120625.pdf

Topics in this issue include a little known, but important economic indicator, the latest pullback in stocks and where gold is headed.

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Once Again, It’s About Europe

Socialist candidate Francois Hollande won the election in France, throwing the Eurozone into a tizzy as Germany no longer has a fiscally conservative partner in France.  This is going to get very interesting as we have Germany favoring austerity and a more hard line fiscal path, while France will look to curb the expense cuts, raise taxes and possibly increase spending. 

Markets cratered overnight, especially in Asia, but by the time the US opened, losses were more muted.  And by 4pm, all of the major indices were green except for the Dow.  Remember, it’s not so much what the news is as much as how the market reacts.  Frankly, I was a little surprised that our market took the news so well.  That could  be setting the US up for a bounce.  Closing below today’s low, 12,970 in the Dow, should set the wheels in motion for more selling with the major indices declining to new lows for the second quarter. 

Longer-term, this should be positive news for gold and US treasury bonds, but let’s let the market tell us over the coming weeks and months.  I still think gold sees a significant low this quarter that could launch a major rally.

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Gold to $2000 and Beyond

Here is the second video I did with the folks from Yahoo! at their beautiful new studio in the city.  Anytime there are bold statements on gold, people come out of the woodwork to comment.  And I would be surprised if they aren’t at least 100 comments by the time you read this. 

One of the great myths is that gold goes up when there is inflation. I think the 1990s is the perfect example of why that isn’t true.  A better statement would have been that gold goes up anticipating inflation…

http://finance.yahoo.com/blogs/breakout/easy-money-low-rates-gold-2000-end-134943224.html

If you bought gold nine months ago at a record high and have since seen the price decline by 15% or $300 an ounce, you’re not the unluckiest investor alive, you’re just a little early.

“This is not a pullback, this is a full fledged correction,” says Paul Schatz, President of Heritage Capital in the attached video. “We’re shaking out every weak-handed holder possible.”

His case for owning gold is three-fold but also comes with the self-disclaimer that he’s “not a gold bug” that reflexively sees the precious metal as the answer to all investment questions.

First off, there’s the fundamental backdrop that the world is full of accommodating central banks right now, least of which is our own Fed. As Schatz says, “the ECB (European Central Bank) is just getting started.”

Add in super low interest rates and just enough inflation and we find ourselves facing so-called ”negative real rates of returns” and you’ve got an environment where something like gold, that protects purchasing power, should do well.

There’s also a timing and technical component to Schatz’s bullish call on bullion. As much as he thinks it would be ”nice” to see gold bottom out around $1500, he’s counting on a sharp snap-back to the previous high of $1900, that will ultimately break through psychological resistance of $2000 by the end of this year or early 2013.

“Once we exceed the old highs in the $1900s, we certainly go to $2000 and that sets the stage for the next run” he says, pondering the next high-water mark, “Is it $2200? $2300?”

“I don’t think the secular bull market in gold is over,” Schatz concludes. “I think you have years left in it.”

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