Wednesday, September 7, 2011

The latest midnight massacre in the precious metals has turned the short-term gold charts bearish.  The unnatural-looking action since Monday evening makes the pattern-search challenging, but we'll take a stab at it as shown in the attached chart.  The midpoint at 1810.40 would be a risky buy due to its position just below "B" and two important prior lows which remain exposed.  The "D" target at 1763.80 looks better, but it's a long way down from where we are now.  Maybe we'll have our chance tonight, around midnight.  (Posted by Doug "harry" McLagan)

We hold a thousand shares purchased for 1.31.  The stock has been a minor disaster, but I'll leave the position open as a long-term play on copper.  It should give us some leverage in case the world does NOT sink into a Second Great Depression.

Shortly after midnight EDT, Gold was getting pulped, down $60 on a single hourly bar. However, subscribers would have been well prepared for the selloff, prompted by Doug 'Harry' McLagan's dead-center bullseye yesterday in calling a top. Brutal though this shakedown be, we somehow doubt that bullion has seen its bull-market highs.

It'll be entertaining to watch Switzerland's new, inflationary monetary policy self-destruct, since, as we all know, it's simply not like the Swiss to trash their currency.  News reports would have us infer they will do whatever it takes to hold the franc down, but they might as well be trying to suppress an earthquake, since global demand for a hard currency could not have settled on a historically more reliable vehicle.  From a Hidden Pivot standpoint, their fright-mask tactic has just a tad further to go before it reaches a troublesome support at 1.1291.  If the negative hubris succeeds in breaching that Hidden Pivot on a closing basis, however, they might be able to pull the September contract down to 1.0724.  We wish them good luck, since anything made in Switzerland these days, even a Big Mac, has become unaffordable to all consumers except for those able to pay with gold.

We're looking for a low-risk spot to get long, but the effort will have to take into account the possibility that the futures could take off without accommodating our niggardly bids. At yesterday's close, they looked like they were developing thrust for a push to 793.50, a Hidden Pivot 'D' associated with a 771.625 midpoint resistance where the rally has very precisely stalled.  I've sketched a hypothetical entry opportunity for camouflageurs, but you may have to improvise if things don't play out so perfectly.

The futures have reversed on the hourly chart without having quite reached our downside target at 1129.00, obliging us to take this lunatic lunge from yesterday's lows seriously. What is its potential? Most immediately, to 1184.50, the midpoint pivot of the pattern shown.  However, it will take just a bit more than that -- specifically, a print above the 1185.25 peak shown, to refresh the bull trend with the creation of a new impulse leg.  A close above that number would strongly hint of more upside to 1233.00, the 'd' sibling of the 1184.50 Hidden Pivot.

[It was nearly a year ago that our good friend Doug Behnfield, a financial advisor based in Boulder, Colorado, lucidly described here how America was headed  into an economic coma that would last for many years. With the financial phase of the crisis winding down, says Doug, we are about to enter a prolonged period of asset deflation, high joblessness and stagnant-to-negative GDP growth. A chief cause of this will be by-now-unavoidable, drastic cutbacks baby boomers must make in their retirement plans. For a close-up look at what to expect, read Doug’s essay, below. RA] Now, let's get this straight. We are in the early stages of a secular credit collapse following the biggest credit bubble in human history. The credit expansion that began in the late 1930s finally became a bubble as a result of a universal, irrational and linear belief in real asset appreciation that developed in the 1990s and reached its glorious peak in 2007. The credit collapse began with the financial crisis of 2008. That was followed by all the king's horses and all the king's men brandishing marvelous new tools trying, but failing to put Humpty Dumpty back together again. We got a pause in the collapse and a spectacular bear market rally, but now we are rolling back into contraction. Six months into the transition, it is time to deliver a forecast for the next stage in the new paradigm that began with the inflection of the secular credit cycle. The First Stage was the Financial Crisis. The Second Stage is the Economic Crisis, with all its attendant deflation and GDP contraction. I am reminded of a quote that Art Zeikel included in On Thinking. The quote was from economist Dick Stoken: "Because human psychology is slow to change, a broad economic move usually