$1803 Is Where Gold Would Come Alive

For gold investors, first the bad news – and let us be clear up front: it’s not really that bad.  Notice in the Comex chart below that the price of gold has been meandering within a pennant formation for more than a year. You don’t have to be a technician to see that this could comfortably continue for some time – well into 2014, perhaps – before the converging lines of the pennant will narrow sufficiently to force gold to “escape” either up or down. You can relax about which direction is the more likely, since the pattern so far looks like a classic consolidation, tipping the odds toward a breakout rather than a breakdown.

However, our own proprietary tools (a.k.a. Hidden Pivot Analysis) suggest that it could be a while before the excitement begins.  This is implied by December Gold’s failure in October to surpass an important  peak at $1802 peak recorded seven months earlier, in March of 2012. Had the recent rally exceeded that peak, it would have created a bullish “impulse leg” of weekly-chart degree, clearing a path to at least $1976.  Alas, the rally chickened out just five points shy of impulsiveness, casting gold into corrective purgatory for an indefinite spell.

A Rare Opportunity

So what would it take to hasten bullion’s northbound exit from the pennant?  Here the news is good, for it would require nothing more than a measly $5 thrust that is uncorrected between 1798 and 1803.  Moreover, according to our technical runes, the thrust would not have to exceed the third peak at $1823 to signal a breakout with sufficient power to reach $1976 over the near term.  In fact, those familiar with our “camouflage” trading technique could conceivably be handed a rare opportunity to board with risk very tightly controlled if a shallow pullback occurs from somewhere between 1803 and 1823. This is shown in the chart with dotted price bars, and the opportunity would be about as good as it gets for bulls looking to initiate positions or add to existing ones.  If you’d like to learn more about “camouflage” trading and the Hidden Pivot Method,  click here.

  • DK November 14, 2012, 8:26 pm

    Rick, loved the commentary on MSFT in the touts and congrats (so far) on FB, brilliant! As much as I dislike Softie, I am hopeful they can right the ship, that would be a “major bummer.” When it rains, it pours, and it would be a double kick-in-the-nuts for anyone with a 401k allocated in the majors, or the market in general as you alluded to, living in the NYC metro area.
    I still have many friends and family going through tough times in NJ/NY, they could do without that heaped on top.

  • Rick Ackerman November 14, 2012, 6:31 pm

    I have posted Cam’s comments at Max Keiser’s blog in order to give them greater exposure. You can access the blog by clicking here. Here’s an interesting comment on Max’s site from one Danny Cunnington:

    This would explain why the Chinese never say anything about price suppression. It works in their favour. The physical flow is one way. Apparently China is hard at work recasting bars into one kilo bars with Chinese stamps and serial numbers but no one has seen these bars anywhere in Bullion reserves. This sounds like a gold standard in waiting, being constantly built up until they can’t get anymore physical.

    Consider that investment demand from China’s domestic market next year is 7,700 tonnes. China is the largest silver producer with around 13,000 tonnes annually so more than half of it’s entire production is swallowed up just by domestic investment. China is also one of the largest users of silver industrially so they may start to aggressively buy silver because even though they are the biggest producer they still don’t have enough for themselves.

  • mava November 14, 2012, 5:03 pm

    “I balance my checkbook every time I write a check or make a deposit. I suppose if I just ordered thousands of checks and never made any deposits, I too would face a “Fiscal Cliff”.”

    Love your analogy, John Jay!

  • Tech-trac November 14, 2012, 3:20 pm

    The last time AU traded near its commodity value was in Jan 2011. Currently it’s trading 40% above that value, so I guess the premium reflects a considerable allowance for safe harbor money.

    2014 allows for quite a bit of time for commodity inflation to catch up or for the global financial environment to implode.
    Muddle through I guess.

  • John Jay November 14, 2012, 3:17 pm

    It is not just the Chinese, of course, that will pile up gold going forward. Someone is on the buy side at all the “Cash for Gold” shops here in the USA.
    It will be very interesting to see the market reaction to whatever compromise is reached on the “Fiscal Cliff” negotiations in DC. I balance my checkbook every time I write a check or make a deposit. I suppose if I just ordered thousands of checks and never made any deposits, I too would face a “Fiscal Cliff”.
    I don’t see any real budget cuts coming, now, or ever.
    Congress fights like hell to keep six figure Air Traffic Controllers employed at abandoned airports, and Amtrak has lost almost a billion dollars in ten years just on food and beverage service!
    The dole must go on!

    • Chuck November 14, 2012, 5:25 pm

      can’t forget that the gold/silver game is rigged by JP/GS…et al. How do we stop the paper players and get the market to reflect the true value of PMs? You can’t…..until the whole thing resets…..and that means chaos.

  • John Jay November 14, 2012, 6:01 am

    I don’t follow gold much, but on my monthly futures chart I see a 40 DMA line at 1450 and the 200 DMA at 814.
    And for the December 2012 contract, it has not been below 1500 bucks since July of 2011.
    A strong up trend to say the least.
    Plenty of potential for it to break up from it’s sideways motion on the monthly chart.
    Just consider:

    Obama is very likely working on “Packing” the Supreme Court at the first opportunity.

    The Fed’s QE will never end, gasoline is still up about 400% from 12 years ago, everything I buy at the grocery store is up a lot. A pound of baking soda was $.60 not that long ago, $1.20 the last time I looked. Cat food, was $.45 a can about 2 years ago, $.70 now. Health insurance, college tuition, property taxes, utility bills, are they up or down for you? The only deflation I consistently see is in wages.

    A major war in the MENA is a very real possibility, with a big spike in oil prices as a consequence.

    The “Fiscal Cliff” problem will be kicked on down the road, and the monthly budget deficit just checked in at $120 billion.

    Who knows where the Petraeus Soap Opera will lead?

    Who knows where the EU Soap Opera will lead?

    Will Germany et al get ugly with the Fed about getting their gold back from the Manhattan vault?
    Is that gold even there?

    China is buying gold for their CB I believe.

    All in all, gold should hold it’s own at the very least.

    • Cam Fitzgerald November 14, 2012, 8:34 am

      I don’t think there is any doubt that China is buying Gold on behalf of its Central Bank, John. The accumulation has been going on for quite some time and though little is known about the exact quantities purchased (or those retained from domestic production) we do know they are taking it seriously.

      From Zero Hedge this morning I came across what I thought was a fascinating insight into the Chinese Gold accumulation process now underway. ZeroHedge writes:

      “China needs to add to its gold reserves to ensure national economic and financial safety, promote yuan globalization and as a hedge against foreign- reserve risks, Gao Wei, an official from the Department of International Economic Affairs of Ministry of Foreign Affairs, writes in a commentary in the China Securities Journal today.

      •While gold prices are currently near record highs, China can build its reserves by buying low and selling high amid the short-term volatility, Gao writes in newspaper. China’s gold reserve is “too small”, Gao says”.

      That was an eye opener for me. If indeed China is already the worlds second largest holder of Gold and it is pursuing a policy of buying on weakness while selling on strength as an end to accumulation then everyone needs to consider it is within their power to dictate prices to some extent. Make no mistake….they can move the market. If we knew exactly who their network of dealers were it would be simpler to prove that price management is actively being practiced on a wide scale.

      The idea here fits very nicely with Ricks analysis of a very long slow technical trend formation before a significant breakout event occurs. So while everyone else is huffing and puffing about Central bank gold manipulation in the West we should perhaps keep in mind that some price moderation is now taking place as an outcome of strategic buying and selling in Asia.

      The folks over there are simply playing off existing market volatility in the same way swing traders might try to make a buck but rather than making that buck the goal is to build reserves steadily over time. Hell, they are admitting as much if we can rely on Gao Wei’s comments.

      Obviously this idea is at odds with the belief that Chinese Central Bank ambitions revolve around the employment of a simplistic “buy and hold” strategy.

      Instead I believe that Mr Wei has tipped his hand and told us exactly how the acquisition process is now unfolding. The point here though is that if indeed the worlds second largest gold holder is acquiring reserves slowly through daily buy and sell routines then we should anticipate golds price to remain relatively flat for an extended period of time as the metal slowly shifts East and the buyer gets what he covets most.

      Physical metal. The real deal. And lots of it.

    • DK November 14, 2012, 9:24 pm

      Yea John Jay, a healthy dose of future punishment in our pockets.
      And to think, the Doomsday clock was set to 5 minutes to midnight back in January.

    • DK November 14, 2012, 10:13 pm