Gold ready for a fall

What a phenomenal few weeks.  NZ dollar priced Gold has risen from just above $1850 to $2320 since the start of August – a rise of 25% in less than a month!  The chart is certainly looking quite parabolic.  A dramatic rise is likely to be followed by a quite dramatic fall.  We are well above both the 50 day (blue line) and 200 day (red line) moving averages.  The chart also shows that the RSI is above 70 which is an indication of being overbought.

 

Chart: Gold in NZD for 6 months to 23 Aug 2011

 

However recent history has also shown that gold can remain overbought for long periods of time.  Looking back to late 08 and early 09 we can see a period of months where gold just marched higher in NZD terms.  Granted it also fell for many months following this, but we are merely showing it can go in one direction for longer than most expect.  In fact this is the very definition of a bull market.  It runs with the fewest people on board, while most are on the sidelines waiting for a correction as many may have been post the recent debt ceiling announcement.  And then when participants are most positive it falls just as hard.  The question is when will the fall come?

But we do wonder whether traders are banking on an announcement from the Bubbly Bernank and his papery cohorts later this week and if more monetary stimulus has been baked into the gold price already?  A decent correction would not surprise us but then again neither would a run of a couple hundred dollars higher.  The $2000 level in NZ dollars has been a long term point of resistance and gold burst past that 3 weeks ago and has since tacked on another $300.  But often these levels of resistance can become areas of price support so it wouldn’t surprise us to see it head back down to test that at some stage.

That said it would seem to be fear is the main driver at the moment still.  Europe remains in a precarious position with major issues with banks across a number of nations.  Gold is rising for reasons and as we comment in one of this weeks articles, the recent announcement from Venezuela that they want their gold sent home was a big one.

We regularly get asked what  do we think the markets will do.  All we can guarantee is that they are going up or down and maybe both!  We hate to sound like broken records but this conundrum is exactly why our theory is to avoid trying to time the gold and silver markets too much.

So thats why we buy in tranches.  Sure if the price drops significantly we like to buy some more.   But by spreading our purchases of gold and silver out over time we get a good overall price and more importantly we sleep well at night!  We can then watch the prices as interested observers rather than petrified purchasers!

(Update: Since starting to write this last night gold has fallen to $1830 and silver is down $2 to $41.50.  In NZD it has dropped $100 overnight to $2200.  Is this the start of a larger correction?  Probably too early to say as the price did the same thing after touching $1800, falling to $1730ish and then zooming towards $1900.  The only safe bet is on continued volatility.)

We intend to revisit some of our “Gold is a Bubble” indicators to see how the yellow metal is faring as there is sure to be more talk of bubbles after such heady price rises.  So this coming week we intend to look at the Dow/Gold ratio, Gold/Silver ratio, and Housing/Gold ratios and see how they have changed since we wrote this article “When will you know it’s time to sell gold?” back in April 2010.  So keep an eye on the website for that over the next week.

However we remain of the belief that it is paper currency that is the bubble forming and gold and silver are merely rising in conjunction with the debt ballon.  You might recall the mention we made at the start of the month of the chart on Zero Hedge using the historical rises of the US debt ceiling to predict a gold price of $1950 by years end – we’ll were nearly there already and it’s only been 3 weeks!

This won’t be in a straight line of course so hold onto your hats!

Lots of articles to read – this week we have another 4 on top of the one with our thoughts on Venezuela requesting their gold back.

P.S.  Just noticed this on the Australian Newspaper website – an  article on Ex Telecom head Theresa Gattung becoming a multimillionaire due to gold! Too many articles in the mainstream showing up at the moment we reckon.

Here’s the links to this weeks articles…


Too Much of a Good Thing Is Not a Good Thing
2011-08-16It’s interesting to see the charts in this article comparing the USA’s money printing to that of Japan in the early 2000′s.  Both resulted in significant boosts to the stock market.  In Japans case it didn’t last and 10 years later the Japanese stock market is still off it’s highs.  Is the USA repeating Japans… read more…
Recent Gold Hedging Activity – a Warning Sign?
2011-08-16Over the past decade or 2 it’s been argued that the use of hedging by gold miners – encouraged by their investment bankers – has been a factor in suppressing gold prices.  However in the past few years most miners have de-hedged to allow themselves to have exposure to the ongoing rise in gold prices. read more…
Economically Sleepwalking
2011-08-21Here’s 2 leasons for the price of one.  The following article compares the current recession with the previous recessions and looks at the current state of the economy when compared to the past.  But it also offers some lessons on the Great Depression and how government policies at the time prolonged matters.  As opposed to the… read more…
The Zen of Resource Speculation
2011-08-22We’ve often discussed how difficult it can be trying to time an entry into the gold and silver markets.  While the following details how to buy junior resource and gold mining shares the methodology used can be directly applied to buying physical gold and silver just as readily as buying shares in a mining company.  So… read more…

Venezuela wants it’s gold back and nationalizes it’s gold mining industry

2011-08-22

In “celebration” of the 40 year anniversary of Nixon “closing the gold window” there has been a fair bit of news in the past week. Biggest perhaps was that Venezuelan president Hugo Chavez became a gold bug.  He announced not only were they nationalizing the nations gold mines but they were also recalling $11 billion… read more…


 

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  1. Pingback: The psychology of buying gold and silver | Gold Prices | Gold Investing Guide

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