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Breakout? Not yet

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September 14, 2010 – Comments (21)

What am I talking about? Gold of course.

So even though we got a new all-time intraday and closing high of Gold in US Dollar terms, why don't I call it a breakout? Because it has still not closed above the trendline for the Large Cup and Handle formation that I have been watching. If we get a weekly close above that line, then I think we have an honest breakout.

Also keep in mind, I am a huge Gold bull, and I enthusiastically share my views, but I am certainly no Gold tout.

I have not been screaming about Gold recently through the nice rally we have been having. In fact my last post on gold was when everybody was screaming "Gold has TOPPED!!". (see: My hat is old. My teeth are gold. And now my story is all told.) What I did instead was to show the progress of my bullish prediction on Gold. And what do we have now? A new all time high.

I *hate* buying Gold on breakouts, maybe not quite as much as the people who recommend that you do so. Gold is a momentum player destroyer and will shake you off so fast that you won't know what happened.

I much rather prefer to buy Gold when *everybody* hates it. Like at the beginning of February (A little early in Dec: GLD Chart and then in Apr confirming uptrend: binve's Gold Foil Hat Zone: More Thoughts on Gold's Massive Bull Market) and the end of July (My hat is old. My teeth are gold. And now my story is all told.).

It makes me feel all warm and fuzzy when everybody is screaming that Gold has topped :) My PM and GSM long positions are by far the largest in my portfolios, much larger than my equity shorts. I am quite content to wait for another large pullback (and yes we will get one) and buy Gold again when everybody, once again, screams "GOLD HAS TOPPED! THE BUBBLE HAS BURST!". I am in no rush and the Gold bull market is far from over IMO.



ENLARGE

21 Comments – Post Your Own

#1) On September 14, 2010 at 7:34 PM, outoffocus (22.84) wrote:

So you think gold will hit $1200 again before the next breakout.  That would be awesome.  I know now that I need to load up!

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#2) On September 14, 2010 at 8:56 PM, binve (< 20) wrote:

outoffocus ,

Hey outoffocus, those are just rough projections. If we break above 1300, then 1200 will become very strong support during a retest. If we only break out to 1300 or so an then correct, I think 1100 will be strong support with 1000 as major support. Just some thoughts. Thanks!..

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#3) On September 14, 2010 at 9:19 PM, outoffocus (22.84) wrote:

Well in the end the short term movements aren't that big of a deal.  I'm holding pms until the treasury/bond bubble pops anyway, which is the only catalyst I see right now for gold hitting bubble territory. Any short term corrections merely provide quick buying opps.

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#4) On September 14, 2010 at 9:21 PM, binve (< 20) wrote:

>>Any short term corrections merely provide quick buying opps.

*exactly*. I am not a buyer here. But there is no chance I am a seller. I will just wait for the next big pullback to accumulate. When some of the valuation metrics that I watch (like the Dow/Gold Ratio) become favorable, then I will start to divest. But that is years away. 

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#5) On September 14, 2010 at 9:27 PM, starbucks4ever (97.66) wrote:

Gold just went parabolic today. Investing in parabolas is nothing but a greater fool game. Just ask the unfortunate souls who paid $147 for a barrel of oil just before the crash.  

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#6) On September 14, 2010 at 9:30 PM, binve (< 20) wrote:

zloj ,

Once again, I am so glad that we have someone on this site to tell everybody else how much of an idiot we all are. Man, we would be so lost without you. Thanks for the useful service!!..

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#7) On September 14, 2010 at 9:42 PM, atarigod (< 20) wrote:

Gold really has surprised me. I purchased the vast majority of my gold position sometime in April '09, I really thought that December last year was a blowoff top for it but it has been incredibly resilient.

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#8) On September 14, 2010 at 10:16 PM, kstarich (30.76) wrote:

Binve

I am with you on this.  I do see a correction too this week possibly Friday.  As I wrote in my blog I see potential for a major run up starting Sept. 24 where I think it goes to 1300 or so and then hits the brick wall.last week of October. We'll just have to wait and see what happens.

This is a great post, you always hit the nail on the head!  Thanks 

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#9) On September 14, 2010 at 10:21 PM, kstarich (30.76) wrote:

Binve

Keep up the great work on your charts! I look forward to your Dow/Gold charts.

I will watch for them

Thanks again

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#10) On September 14, 2010 at 10:31 PM, binve (< 20) wrote:

atarigod ,

I hear you man. I have bought every major pullback for the last few years and have been very happy with those moves

kstarich,

Thanks kstar! I agree, that cup and handle is a rough target and rought timing. I agree that 1300 will definitely be some resistance.

>>This is a great post, you always hit the nail on the head!

Thanks!

>> I look forward to your Dow/Gold charts.I will watch for them

Definitely! I will put out an update soon. Thanks!..

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#11) On September 15, 2010 at 9:46 AM, outoffocus (22.84) wrote:

zloj

So a 1.8% jump in price is parabolic.  Well that means the Dow and S&P go parabolic every other week.  Are you buying into those parabolas?

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#12) On September 15, 2010 at 12:47 PM, richthegeek (< 20) wrote:

Binve -  can't thank you enough for all of your work analyzing the market. For a novice like myself, it's some of the best education available.

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#13) On September 15, 2010 at 1:29 PM, binve (< 20) wrote:

richthegeek ,

My pleasure, glad it is useful! Thanks!..

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#14) On September 15, 2010 at 1:42 PM, IIcx (< 20) wrote:

zloj took a stance in one of binve's recent posts -- SPX 1200.

For the life of me, I can't find a reason we shouldn't retest 1200 given the Mutual Fund Managers who have been chumps this summer and need to show profit for the year and the investment base that needs to get clean before Obamanation tax laws take hold next year.

Gold is going down as well as nearly every other asset but not until after Jan 1.

2011 good times :( but at least we'll get reality back.

Watch your shorts, its going to be a wild ride ;)

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#15) On September 15, 2010 at 2:36 PM, binve (< 20) wrote:

IIcx,

>>For the life of me, I can't find a reason we shouldn't retest 1200

Fair enough. But then I can't find a reason why we shouldn't go down to 950. That's just me :).

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#16) On September 15, 2010 at 2:46 PM, IIcx (< 20) wrote:

I also agree binve -- we're at a crossroads without a map but though there isn't enough short skin in the game to trigger another Bear squeeze rally there are factors that will take the markets higher when they should be technically doing the opposite.

I'm still long with a short hedge in the VIX but my long positions are so beaten down by the summer doldrums they can't go anywhere but up. This is one of the aspects that convinces me we're going up from here.

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#17) On September 15, 2010 at 4:58 PM, kstarich (30.76) wrote:

llcx

I think you are so right about the wild ride part.  Uranus the planet of "wild rides" is going into the 8th house of "other peoples money"

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#18) On September 15, 2010 at 5:56 PM, IIcx (< 20) wrote:

hi kstar,

I think we saw Japan throw the 1st pitch in that ball game this morning.

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#19) On September 15, 2010 at 5:57 PM, starbucks4ever (97.66) wrote:

 #11,

There is a difference between rising price of a valuable asset and rising price of gold.

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#20) On September 15, 2010 at 6:13 PM, silverminer (31.04) wrote:

Interesting post, as always, binve!

Your wait-and-see appoach is of course the appopriate one for the sector, but I for one am feeling perhaps a touch more bullish than you at the moment. I'll call it, reservedly bullish on the near-term.

The two consecutive daily closes above the old nominal highs in both metals simultaneously is certainly a significant technical achievement. I have not yet observed gold retracing immediately from a 2-day breakout from a multi-month correction ... not to say its not possible. What I really like here is what silver's action portends for gold. Silver has led gold out of this correction, and I believe the leveraged shorts may presently be feeling the squeeze. If so, we're in for a fairly major repricing event that will make $1,300 gold look like chump change. I'm looking for $1,500 before the onset of another correction, with some potential for Sinclair's $1,650 target to be reached before next Spring. Of course, as you know, I'm not a trader but a buy-and-holder ... so time-linked pojections like that are just a sideline indulgence and nothing I would eve wager on.

The fundamentals are also nicely stacked. Gold has already established its ability to move effortlessly in corelating between the USD and the Euro ... whichever finds itself the focus of concern at a given moment. From here on out, I don't see the USD/Euro ratio impacting gold nearly as much as it did pre-Euo-crisis. This domestic economic weakness is unrelenting, and I expect a monetary or stimulative response before long.

At some point in this cycle, one must expect the dynamics of gold to shift dramatically. So much of gold's mind-bending volatility has been predicated upon the weak longs ... but what happens when weak longs become scarce? What happens when gold traders turn to gold holders and accumulators? What happens when the leveraged card house blows down? What happens when bullion deivatives implode in a short-covering frenzy? What happens when China agrees to buy all of Russia's production? What happens when the next stimulus/intervention is announced? What happens when a billion gold skeptics finally wake up to the fact that they have no exposure to the only true safe haven of merit? What happens when oil-poducing nations close the dollar-oil bourse? All or at least many of these events are probable and potentially imminent. For these reasons, I see no cause at the moment to fear a sudden and extremely unusual retreat from a breakout that silver has revealed as a very strong and significant one.

I say all systems are go. I do note that in the lead-up to this breakout the momentum indicators were stangely in a downward trajectory through recent weeks. That is my one source of concen, along with the insanely short-term mindset of both the big money quants and the small-fry weak longs. Alright, so two causes for concern amid a barrage of bullish signals. I would guess $1,350 for starters before a miniscule pause and a push through $1,500. The only caveat I would add is that such pedictions are purely game-play ... binve could just as easily be 100% right. I am sitting on some cash raised during recent strength (before the breakout, when that momentum indicator really gave me pause), and I would love to load the truck at $1,200 or lower ... I just don't see it at the moment.

Thanks for posting your thoughts, and for always presenting your views in such a clear and helpful format!

Cheers!

http://www.fool.com/investing/general/2010/09/15/countdown-proceeds-for-gold-and-silver-liftoff.aspx

http://www.fool.com/investing/general/2010/08/31/gold-too-legit-to-quit.aspx

 

Sinch

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#21) On September 15, 2010 at 6:58 PM, binve (< 20) wrote:

silverminer,

Hey Chris!

>>Your wait-and-see appoach is of course the appopriate one for the sector, but I for one am feeling perhaps a touch more bullish than you at the moment. I'll call it, reservedly bullish on the near-term.

Don't misunderstand, I am quite bullish in pretty much all timeframes right now. I just don't like buying gold on breakouts or near breakouts. I am very comfortable buying it when it is unloved / actively hated (loading up at the end of 2008 has been nicely profitable).

I am charting the peaks because Gold needs to make new highs to continue its bull market. And I *fully* expect it to do so. But for now, I watch the peaks with interest and as a confirmation, not as a seller. Nope I buy pullbacks. The spike ups right now are amusing. And I love the prognostications of a "top", "bubble bursting", "parabolic runup for a useless relic", "stupid shiny metal", etc. I feed off the active hatred, and it makes me happy quite honestly. As long as Gold continues to be misunderstood I will be a buyer.

Once it starts spiking by crazy amounts, when people en masse understand its worth, there will be a feeding frenzy. And when the valuation metrics I am watching become favorable, only then will I be a seller. I am quite patient. This has much further to go.

>>Of course, as you know, I'm not a trader but a buy-and-holder ... so time-linked pojections like that are just a sideline indulgence and nothing I would eve wager on.

I know exactly what you mean :) I am in the same camp here. There are many things that I trade, but gold is not one of them. Not in real life (Caps is entirely not real life).

I have the benefit of being able to be patient and waiting for good buying opportunities. I was buying in 2008 (Dec 2008 was a gift). I have no need or desire to chase. I have a nice position already established in a major bull market. This makes me happy :)

>>Thanks for posting your thoughts, and for always presenting your views in such a clear and helpful format!

Absolutely man! Just trying to add my small part to your tremendous body of work here!!..

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