Tuesday, November 15, 2011

Gold Update

Click on Chart to Enlarge

This chart is continuous gold prices. For reasons I have covered in detail in recent months, I fully expect the decline off the September high in gold to be the initial leg down of a bear market in gold. I also believe this is likely a long term top in gold based on long term price channels and the overall market context. I have recently posted an inverse ETF trade on gold to make gains as gold falls. The chart above shows (in green) the average 1st bear market rally in gold after a first leg down. The blue line is the projection from the Sept 2011 low of the 2008 first bear market rally. Both project to the first week of December. Recall from my prior post that the average bear market rally in stocks since 2000 projects to the first week of Dec also.

In both cases the current market has already exceeded the average price retracement or percent gain up from the lows, but the time is a bit shorter than typical. So I feel confident that this template is a good one for the current market environment. Both market could peak any time now if they haven't already, and upside is likely limited on an push to new rally highs. It seems likely that both stocks and gold peak around the same time on this rally, and both correct together. I personally believe both will go to new lows below the Sept/Oct lows.

Markets will likely continue to fall in a deflationary theme with most markets down and the US dollar up as ongoing debt problems come into crisis. On a long term investment basis I would be long the US Dollar UUP etf and in virtually nothing else.

1 comment: