What's next?

Here's one we haven't looked at in awhile: the monthly gold chart, for the duration of the secular bull market. On June 3, I noted "Looks like we're quickly approaching the vertex of a rising wedge that began in (February) 2008 … Whichever direction it turns, it certainly looks to me like this summer will mark a violent entry into a new phase."

Well, we have our answer.

Here's the 3-year daily chart of gold with the 144-day moving average. The brown line is the line of best fit of the the 144-day MA (orange) since it began its upward trajectory in February 2009. Expect the MA to approach the upper grey dotted line soon. The grey dotted lines are about 1.5% in either direction of the brown line, and capture all the movement of the 144-day MA so far.

Are we at a short-term top? Well, on this chart, gold looks headed to the upper purple dotted line, i.e. a run to $1800. If it gets there, and the 144-day MA (orange) hits the upper dotted grey-line, I will unwind some of my gold positions, and hedge with the proceeds. However, because I don't want to leave myself vulnerable to a shower of black swan droppings, I plan on being net long "for an extended period."

Note also the RSI is not yet at Dec 2009 and Oct 2010 levels, but almost there.

A slightly different picture is painted by the daily chart with the 40-day exponential moving average envelopes. I don't see the 40-day EMA mentioned much, but I like it better for gold than the 20-day. (For one thing, I used this metric on July 1, when I noted that the price of gold was below its 40-day EMA, and had only gone below it during "significant" corrections since 2009.) The 7.5% and 10% envelopes of the 40-day EMA (red, green dotted, respectively) have been almost perfect for the entirety of the gold bull market (only last 5.5 yrs shown here). Thus, it is notable that gold popped upside of the 10% envelope last night for the first time ever, then fell right beneath it. That tells me we're very close to a short-term top, though we may "ride" the top envelope for a little longer. Again, unless a flock of black swans shower us with turds.

Q. How do you predict a stock market crisis? A. How about when the 10-year yield to gold ratio drops significantly below it's 10% 20-day EMA envelopes? Check the black circles below: look familiar? Note, though that as far as vertical distance from the envelope is concerned, we're already as bad as we were in 2008, which signals, perhaps, that the bloodbath will subside for awhile. Will the ratio rise because yields pop dramatically, or because gold drops dramatically? At least one will happen, and probably soon. Maybe the next chart will give us a clue.

Perhaps the most important chart today: the CCI Commodities Index, which finally reached the point where I saw it heading back in June: the intersection of a major horizontal support line and the 233-day moving average (orange). Note how often historically the CCI has dipped just below the 233-day MA, only to pop up at least 10%. Also check out the RSI, at 30. This is with gold at all-time highs.


Louis Cypher said...

Beautiful GM. Hope you are not burning the candle at both ends though.

Anonymous said...

Fabulous TA as always, GM. You do realise that my wealth (or absence of it) is now entirely in your hands? [joke]

Gold just hit GBP 1,100, btw. Good-bye England. It was nice knowing you.


Yukon Cornelius said...

Nice write up GMJ. There's so many ways to look at gold right now. My favorite which I've mentioned is to look at the value of gold relative to something else which I almost always use a simple ratio of Au/X where X is whatever I'm looking at.

For an example just pull up a Gold/Silver chart and take a look. Is silver expensive here or is gold cheap? Look at the mean and do some math. $2600 gold sound right? Maybe.

Check out Gold and Copper. What do you think here? Gold might stop at $1800 for a bit? If so does that suggest silver might be $28 or so?

Check out Gold and Plat. Possibly suggesting plat should be around $2200 or so? Or instead is it saying gold at $1400ish?

Check out Gold and Lumber. Hmmmm...

You know I believe gold is the real deal. I think it has gotten a bit ahead of itself, but these are interesting times. I already have the gold exposure I'm comfortable with so I don't have to try and figure out how I want to trade gold I'm just looking at what story gold is telling about the value of other things relative to gold. To me that's the real interesting part of this and where some substantial future gains may be made.

Love these kind of posts from you guys.

Robert LeRoy Parker said...

From Fofoa's "Gold is Wealth."

Be wary of the "men's suit comparison". Just a couple hundred years ago a wealthy man amidst 1 billion others on this planet might have had a handful of fine men's suits, a nice house and a large plantation. Today a wealthy man would have dozens of fine suits, a couple mansions, a large yacht, 29 flat screen TV's, an iPhone, and a sizable paper-wealth trading account. And that is among 6.75 billion souls on the planet. Compare wealth with wealth, not suits with suits.