Goldrunner -Let's Talk About Gold

I started to put a chart together, tonight, to show a simple relationship but as usual got carried away. I considered showing some different relationships in different charts, but that might be just as confusing for one to try to "consolidate in the mind", different channels from different charts. Thus, I have included all in one chart.

First, let me review some earlier comments on the basic fundamentals of $Gold. I believe that these thoughts carry more weight after reading a review of what Mr. Greenspan had commented on some years ago in recently released Fed notes. His comments apparently reflected on a former Cabinet Member's use of the term "strong dollar policy" to placate the markets. It seems that Mr. Greenspan was particularly impressed with how such a mundane (yet untrue) statement, if repeated over and over, could placate the markets and reduce questions from the media. Thus, Mr. Greenspan it seems further suggested that the Fed take the same approach in communicating in the future. Though I find this strategy to be highly questionable if not verging on disinformation and outright lying, it nevertheless gives us some insight into how far public officials feel they must go during these highly irregular market times.

Furthermore, I also read today some comments that suggested that certain military exercises might have been meant more to force the price of oil higher by removing oil from the marketplace, than the publicly reported reasons for the military maneuvers. I at first thought this idea as asinine until I got to thinking about the potentially deflationary conditions that the world had and does face. The report suggested that higher oil pricing might have been produced to placate the Saudis, but when one is facing deflation it also might have helped to serve a higher purpose.

Anyhow, I have written extensively in the past about my opinions of the Fed having been stuck between a rock and a harder spot with a backdrop of massive deflation rearing its ugly head. With Mr. Greenspan having written about his ideas of wanting to be the Fed Chair for the next Kondratiev winter, the plans he had outlined about dropping rates and providing massive liquidity to the markets seem to be old news at this time. The printing of dollars, or dollar inflation, certainly has been a part of the plan as seen in the near-vertical chart of M3. Particularly interesting, it has recently been reported by groups that follow M3 after the index was cloaked, that dollar printing was ramped up in the last two months. We are seeing massive inflation compared to normal, though the main CPI index for detecting such changes has been fiddled with to underreport such inflationary changes. Still, the consumer feels the massive inflation at the grocery store, at the gas pump, and with every bill that he receives in the mail. He can also detect the same by glancing at charts of the basic metals, or the agricultural products.

We have also touched on the fact that part of the liquidity injections might have been based on the creation of the housing bubble, but that credit cards have been handed out like candy at a political parade. Now, it seems, that the new farce is to send out "check loans" in the mail that one merely needs to sign and to deposit.

As far as the fundamentals of $Gold are concerned, I believe all of the above can simply distilled down to the fact that dollar inflation is high and accelerating. Price inflation is following dollar inflation and is accelerating, also. Only the Precious Metals- Gold and Silver- can protect one's wealth in such a situation.

So given the above, why has the price of Gold and Silver in USDs been flat for almost a year? Why have the charts of the PM stocks been flat to down? Well, when a magician performs his feat of magic on stage, he relies on smoke, mirrors, slight of hand, and distraction. It is all about the perception of the public as Mr. Greenspan apparently acknowledged to the Fed members in his discourse of Rubin's repeated rant on "strong dollar policy." In this case perception equals "Goldilocks Economy", and it equals a temporary period of Precious Metals disorientation as far as investors are concerned.

What investor are being fed a constant dose of is a complete lack of reality, IMO. M3 has been cloaked to hide the massive dollar printing going on. The CPI has been sliced and diced to uselessness. The inflation card has been played from both sides with the CPI being grossly understated, yet higher costs are being reported as causing PM companies to struggle for profits. How can this be? Answer- it can't.

Back in early 05 I had put forth a "model" based on a historical chart pattern in the HUI that I thought would likely play out in the future. We saw that chart pattern play out into 2006 with an impulsive move to around 400. Since the following correction was expected to be a complicated affair with flat pattern emerging before another vertical period, my personal plan was to do some selling between HUI 385 to 393, then to re-buy in the 320 area for the next vertical leg of the HUI bull. At this juncture we know that my "time component" was off by about 3 months per year, but still this has been a longer correction than I would have expected strictly based on the earlier fractal sequence. That leaves questions. Why so? For how much longer? Will the fractal pattern still play out? Will the fractal pattern still potentially see the higher runs that I had expected? These are all questions that I ask myself since I invest based on the above fundamentals as I see them, along with my personal chart work.

My opinion at this time is that the fractal scenario will continue to play out. We will know by watching the movement of the HUI into late 2007 whether "time" will allow the potential targets into May of 08 to take the indext to the 1250ish level, or whether such a move will be extended into late 2008. Knowing that the last portion of the move will be fairly vertical, the potentials into May of 08 might still be on schedule. If not, it does not bother me much because the trend channel, if the timing is off into May of 08, will likely give us an even higher price potential the farther out we go.

Let's consider the psychology of market participants based on the perception of the fundamentals at this time. Sometimes markets can remain irrational longer than one would expect. I believe that this "irrational period" is about to suddenly end. Forget the smoke and mirrors that are creating the "market perspective." Forget the COT. The bottom line is that the market fundamentals will rule in the end. Market participants have been sold "low inflation" based on a horribly tainted CPI. They are being sold interesting "TIC data" showing Asian countries buying less of our debt with those losses being picked up out of the Cayman Islands. I can only imagine that Cayman Island debt buying being fueled one way or the other with newly printed dollars.......monetization of the debt either done directly by dollar printing, or indirectly done by a sweetheart deal combining dollar printing with credit being extended to some funds. IMO that is monetization of debt no matter how you look at it. Yet, the Bond participants seem to be caught in the same type of "perceptional maze" that Mr. Greenspan had noticed with "the strong dollar policy" hoax.

Back to the fundamentals at hand. Dollar inflation is accelerating which should be very positive for PM pricing. Price inflation is ramping up which should be good for PM pricing. Monetization of debt should be bad for Bonds, but good for PM pricing. Perception is but a "nickel-flipper" state of mind.

Yesterday, I sent a chart to Sabre showing the relationships of several markets in the earlier fractal segment to today. The relationships look much the same as today, except that the USD had rallied back to resistance before the PM complex took off. Still, Copper had already rallied, along with the Dow, before the PM complex just went vertical. I think we will see things resolve in the same way this time.

http://stockcharts.com/h-sc/ui?s=$HUI&p=W&st=1995-01-02&id=p43507928808&a=106682590

I posted these three Gold charts, yesterday. The first chart is by a fellow called "Axstone" form the K-site. The next two charts are mine (one is a re-work of a Salscandle chart) as I had anticipated the same as he currently shows. What we see is that $Gold is sitting on an area of heavy support, potentially ready for lift-off.

http://tinyurl.com/33wr6l

http://tinyurl.com/2v85fv

http://tinyurl.com/2pe3uz

Notice that the HUI has the same "configuration", but we cannot use this chart to look for potential targets since the HUI chart is an arithmetic chart.

Tonight, I put together a chart of $Gold showing all of the channels and lines that I deem important. Once all of those lines are applied, we see that an extremely strong support area has been created by a combination of horizontal and angled line configurations, coupled with a trend channel. We see that a trend channel for $Gold was originally bounded by the thin black lines, but that price moved up into a higher channel of thin black lines with the move into 2006. At the same time we see that a higher sloped channel was formed in the thin blue lines. We can also see a "core thick black line" threading through the middle of heavy support and resistance that supports the current price, along with a "core thick pink line" that is newly created with the higher slope of the thin blue line channel.......though that thick pink line core will soon be replaced by a "thick blue line core" as price accelerates upward into what I believe will be a 5th wave advance of some sort in Wave III. Bottom line.......It seems to me that $Gold is now sitting on the equivalent of a concrete floor that JS has termed a "platform."

http://stockcharts.com/h-sc/ui?s=$GOLD&p=M&st=1974-01-02&id=p93090267109&a=106785501

Before I decided to include all of the angled lines in that chart, I had originally wanted to show some moving average relationships. These relationships are important for several reasons, especially for showing how out of whack investor perception might soon be shown to be in regards to the PM stock sector. In the chart, below, I show only the monthly chart with 8, 21, and 36 EMAs. The 36 EMA is the 3-year average price of Gold- the metric used for valuations of Gold reserves by PM companies. We can see that the 3-year average has risen about $100 in the last 12 months and is rising as we speak. Yet, have we seen this massive increase in the 3-year average factored into PM company reserves, yet? I don't think so- just pull up a chart of the bulk of the explorer stocks over the long-term. If that higher average would have been factored in, we would expect almost all of the explorer charts to have moved up aggressively as reserves are valued higher, and as more reserves are added into the calculations at higher average pricing. We must remember that PM stock pricing has never historically been based on earnings, but has been based mostly on reserve valuations......per JS.

Thus, we are currently seeing PM companies restrained under the conditions of rampant inflation while the company's stock prices are not allowed the booster rocket support that the same price inflation should afford them.......AND without the higher reserve valuations being built in. So? When could we expect those factors to be built into valuations? I suspect at the first whiff of reality instead of the current misperceptions of low price inflation and low dollar inflation- as soon as investors realize that $Gold and $Silver will be making new highs. It should be an explosion, me thinks...........back to reality.

Also notice in this chart the relationships of the 8, 21, and 36 monthly moving averages. Notice the strength of price as it has consistently hovered above the 21 month EMA since the bottom. Also notice how the "oscillator" of the Slow Stochastics quickly became overbought off the bottom and has stayed overbought.

http://stockcharts.com/h-sc/ui?s=$GOLD&p=M&st=1974-01-02&id=p18523951793

I have seen many refer to a monthly chart of Gold and point to the TA indicators as being overbought, thus expecting a major correction in price. Yet, below, I will post the exact same chart of the Dow. Look at the TA indicators and tell me that $Gold must further correct. Look at the relationship of the similar moving averages that I have shown in the $Gold chart. And do not lose sight of the fact that $Gold is a "momentum market bull." Such would suggest that $Gold would be expected to get more overbought and to stay more overbought than any general stock index, except for possibly the Nasdaq's bull.

http://stockcharts.com/h-sc/ui?s=$INDU&p=M&st=1974-01-02&id=p18523951793

In fact, let's look at the NasDOG. How long did the monthly RSI stay mostly above 70? If the chart of $Gold does the same, how high would $Gold likely go?

http://stockcharts.com/h-sc/ui?s=$NDX&p=M&st=1974-01-02&id=p18523951793

Personally, I think that the charts suggest that the party is just getting started. I still look for $Gold 757 with the possibility of 782 in the very near future..........then off to $960.

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