Gold Price Is Stabilizing

Many economists believe the price of gold has fallen because institutional investors have become more interested in owning the general stock market.
 

May is a time when institutional investors often sell stocks.  An ominous head & shoulders top pattern appears to be forming on the Dow.

“If you look at the economic growth story, it’s just not really there” –David Bloom, head of FOREX for HSBC, April 23, 2013.

Gold imports in India are surging.  "Imports have been phenomenal since April 15. Banks are getting the lion's share in this profit," -Daman Prakash Rathod, MNC Bullion, Chennai, India.

The banks have an “interesting habit” of making the largest profits in most markets, most of the time.  Since gold crashed, dealer spreads have increased dramatically, benefitting the bullion bank dealers. Last year, gold bottomed in May.  Will it bottom there again, this year?  

I want you to take a look at the daily gold chart, through the eyes of a bear.  The gold bears believe there is a flag pattern in play, and prices of $1100, and lower, are coming very quickly.

I view the market more as a fight, than an “investment”, so I like to know what’s in the mind of my opponent.  There is a bearish flag pattern in play, at least on that chart, but that doesn’t necessarily mean the bears will make any profits from their analysis.  

Why would that be?  That’s another view of the daily gold chart, highlighting the action of my “Stokeillator” (14,7,7 Stochastics series).  

The Stokeillator gave a very clear sell signal several days in advance of this gold crash.  It’s beginning to turn up, and a crossover buy signal seems imminent.

Most investors want to avoid pain.  Traders can use my Stokeillator to do that, but longer term investors can also use my sell signals to simply grit your teeth, and get ready for a bit of a rough ride.

The current position of the Stokeillator suggests, at bare minimum, that a pause in the bearish price action is very near.

In the bigger picture, I’ve always asked subscribers to act as “investing marines”.  That entails looking at the long term weekly and monthly charts, and defining key HSR (horizontal support and resistance) areas.

When the gold price arrives (whether gently or in a wild crash is irrelevant to the marine) at one of these key HSR zones, the marine goes into action, and buys gold in a pyramid formation.

You are looking at the weekly gold chart.  Since the August 2011 highs near $1923, my view is that only 2 long term buying opportunities have occurred.

The first occurred almost immediately after that August top, at $1577.  Numerous rallies occurred from that key HSR zone.  

I maintain a “3 strikes and you’re out” HSR-area rule, for gold.  It’s critical to buy the first time that price arrives at an HSR zone.  Put the fear demon aside, and just buy.  Analyse the situation later, but make sure you do some immediate buying, even if it is just a little bit.  

When gold crashed, it happened after the fourth touching of the HSR at $1577.  Gold struck out, and so did investors who 
called the bottom there.

Focus on buying an asset that is timeless, without hesitation, analysis, or procrastination.  If you try to predict a parabola for gold, long after HSR is first touched, you are more likely to strike out than hit a home run.

I have some minor concern that the violence of the crash into massive HSR in the $1432 area may be enough to send gold down to the next zone of key HSR, at $1266.  

That’s not far below the current $1320 area lows, so it’s very important that investors don’t panic.  Instead, prepare to start buying at $1266, if gold goes there. For nvestors who can’t fight their personal fear of lower prices, put options are the best solution.

The key fundamental question right now is, “what demand factor can overwhelm the ETF selling?”  Well, if gold were to decline to the $1200 area, Indian scrap sales, which are already dropping, could cease altogether.

What about the short term?  I think a test of the $1400 area is coming, but not yet.  First, I think gold will retest the highs near $1435.  This chart also provides a closer look at the supposed “bear flag” pattern.  I don’t see a flag at all.  I see a bottoming process, fuelled by dwindling Indian scrap sales and central bank purchases.  You should be ready to buy at $1266, but $1470 is the more likely price objective, in the immediate term!

Special Offer For Gold-Eagle readers:  Send me an Email to [email protected] and I’ll send you my free SRT report.  Silver ratio traders need to be on the alert now.  I’ll cover the basic rules of ratio trading for you!  Also, while gold has really gone nowhere over the past 6 weeks or so, my long-only GUTrader intraday gold trading service has booked about $165 an ounce in trading profits.  All trades are closed out by 5pm each day.  If you’re a gambler that likes intraday action, send me an email to [email protected], and I’ll send you the details of this email-based trading service.  Thanks.

Stewart Thomson

Graceland Updates

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Stewart Thomson is a retired Merrill Lynch broker. Stewart writes the Graceland Updates daily between 4am-7am. They are sent out around 8am-9am. The newsletter is attractively priced and the format is a unique numbered point form.  Giving clarity of each point and saving valuable reading time.

Risks, Disclaimers, Legal
Stewart Thomson is no longer an investment advisor. The information provided by Stewart and Graceland Updates is for general information purposes only. Before taking any action on any investment, it is imperative that you consult with multiple properly licensed, experienced and qualifed investment advisors and get numerous opinions before taking any action. Your minimum risk on any investment in the world is: 100% loss of all your money. You may be taking or preparing to take leveraged positions in investments and not know it, exposing yourself to unlimited risks. This is highly concerning if you are an investor in any derivatives products. There is an approx $700 trillion OTC Derivatives Iceberg with a tiny portion written off officially. The bottom line:   
Are You Prepared?

Stewart Thomson
www.gracelandupdates.com
  24 April 2013