Tuesday, September 16, 2008

Daily Musings - GOLD!

Hey Everyone,

It's been awhile since I talked about gold as a speculation -- I wanted to jot off this note though since I've been talking privately with folks about it, but haven't really come out into the public in a definitive way and given people my thoughts.

(I'm writing this during my lunch hour, so I may have to double back with appropriate charts to make my points more clear this evening.)

Pretty much all of the commodities have been getting slammed.

Without getting into a deep analysis of "why" (plenty of "reasons" could be cited as potential contributory reasons) let's just accept that "it is what it is". So, what to do?

If you're long gold stocks, ETFs, Silver, Miners of either, Platinum, etc you've been enduring a great deal of pain. Technically speaking it looks like you are in a small recovery phase off a recent low, which an Elliot wave theorist would say is the 4th of 5.

The Five waves predict: wave one, down, wave two up, wave three down, four up, and five down to complete the five wave movement.

So far, when looking at the chart, a case can be made that we still need to have one more wave down.

If you are looking at the volume vs. price indicators on a daily you'll see (as well) that as the price is recovering slightly here, you see the volume going down. That is to say, as the price increases there is less interest in trading -- that's usually a sign that more downward price pressure is coming as well.

So how low could it go?

Assuming what I just said predicts more downward pressure in the price, it could break 700 on the downside and go into the mid-600's pretty easily. While that sounds horrific if you are holding precious metals or mining shares as a speculation, a move like would have me looking very closely for a "turn" back northward in price.

All of this could be a bunch of hogwash obviously, but if you are NOT already *in* and contemplating a jump in "because it's cheaper" beware the potential for a fifth wave down....right now, you have so many moving parts that it makes "fundamental" analysis pretty useless....while theoretically a rate cut or more liquidity tricks by the fed and treasury to prop things would be supportive of precious metals, there is a lot of counterparty risk and hedge fund (etc) deleveraging which will be driving the price action. In situations like this it's better to be late (buying) than early.

my 2 cents.
Uruguay Guy

p.s. if you're already holding physical as a hedge or as "insurance" don't be freaked out. Tis much better to never have to cash in your insurance, right?

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