Sunday, June 26, 2011

comments on gold - 06-26-2011

I do not follow gold the way some seem to do.  If you think about it gold is a very small portion of the real assets in the world  when compared to things like oil, coal, natural gas, copper, land, etc.  Still it gets more written about it than almost any asset.  Personally I think one may be better off investing in raw land.  At least then you have an asset that can produce the food you eat.  You can't eat gold, there is little demand for it as a component of manufacturing.  Other than burying it in the back yard in a chest or making jewelry it has few uses.  Yet, many consider it the ultimate store of value and historical it has been an exchange medium.

Depending on who you read gold id going to $2,500 or more or going to $1,000.  It may do both?  If you look at the low in the past 32 years it is about 600% above that low.  But if you look at the high the past 32 years and inflation adjust that high it would have to be over $2,000 to match that high.  Pick your point of reference and make your argument....

As swing traders though we are more interested in what gold will do in the next few weeks.  Many seem to think we get a pullback in the near term and I have seen the number of $1300 mentioned (that would be about a 16% correction from its pear around $1550).  I have also seen the number $1650 mentioned more than once or about a 6% advance from its peak. 

I took a look and it seems to me we will get a bit more of a correction (at $1500 we are about 3% off the peak), but $1300 seems a bit low.   After that we may see an indeterminate advance.  I looked at the weekly $GOLD chart and we had a 1 year cycle bottom earlier at around $1500 and have been going sideways between $1500-1550.  The logical question is - why?  The answer appears to be that we have a 26 week (1/2 year cycle)  moving toward a bottom in late July as the 1 year cycle which bottomed around the 1st week of May moves up.  Essential these 2 cycles are competing for control of $GOLD causing the sideways movement. 

So how does it work out?  Looking at DPO  to try and determine the amplitude of these two cycles and how it plays out it appears the gold will pull back about another 3% (total 6-7%) to around $1450 by the 3rd or 4th week of July.  So while I agree that gold should pull back it seems to me it will be less than many anticipate (at least in the near term).

Here is the $GOLD chart:

Gl traders.  Do your own analysis,  As always be careful - I could be wrong.

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