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XMFSinchiruna (27.51)

Nuggets of Wisdom Clad in Disguise

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June 28, 2010 – Comments (9) | RELATED TICKERS: FRG.DL2 , EXK , PZG

Sometimes the greatest nuggets of wisdom and expertise come in the most unlikely of packages.

Take, for example, the hand-drawn charts that gold guru Jim Sinclair occasionally offers up on his website to accompany the more regular technical coverage of trader Dan Norcini.

Sinclair's charts may not look like much, employing scribbles from a marker rather than computer-generated analytics. But for those with the open-mindedness to trust my assertion that Jim Sinclair has more knowledge and experience relating to the gold markets in his pinky finger then most other so-called experts possess combined, these uncommon chart postings of his are not to be dismissed nor overlooked. 

Long-time Fools might well remember the last time I posted a chart of Jim Sinclair's at a similarly significant crossroads in the gold price just over one year ago.

In that post, I noted:

"Chart #2 is gold, revealing a reverse head-and-shoulders formation so clear that the upside-down dude can be heard saying: "Dude, gold's prepared to break out big time!". Gold will not dip below $860 on this correction, and in fact could launch at any time for one last minor test of $1,000 before moving quite swiftly above $1,200 ... faster than most might consider plausible."

Unfortunately for him, blogger GoodVibe4Ever later insulted and boldly parodied my post -- about three months later in fact -- by flipping his chart upside down to convey his own badly mistaken interpretation of the technical landscape of the time. Particularly given the sarcastic manner in which he chose to communicate his contrary opinion, his disastrous call for a collapse in gold to about the $565-$635 area may have caused a touch of healthy introspection among his band of chart-trading afficionados.

I think we're all pretty clear on what gold has done since then:

Just as Sinclair's chart signalled, June 2009 did indeed represent a new bottom in the over-extended corrective cycle of the time. Gold did not violate the $900 mark thereafter, and soonafter ran higher for a minor test of $1,000 before moving swiftly above $1,200 ... faster than most might have considered plausible at the time.

With that important lesson from the past in mind, I would like to point out that Jim has now posted another one of his quirky hand-drawn charts. Here it is:

It shows a clear cup and handle formation in gold. It confirms my interpretation that recent bouts of weakness into the $1,230s have not violated the intact up-trend in place since the prior bottom below $1,080 was set in February. This is incredibly bullish as a technical picture alone, but when placed within the necessary context opf the mounting fundamental drivers for further strength in gold, the chart corroborates fully the expectations born of uninterrupted fundamental analysis of the pm markets.

He reiterates his expectation for a $1,650 price target for the next big move higher in gold, to which I would only add the clarification that minor bouts of resistence will of course be met along the way. Adding an 8% deviation to his primary target, we get about a range of about $1,500 to $1,800 to broadly characterize his expectations for where the next up-leg may reach before the onset of another major corrective pause. Everyone is welcome to disagree at will with his projections and analysis, but long-gone are the days when his views can be dismissed out of hand the way so many have routinely done for many years.

It may look like the silly scribblings of a bored teenager in geometry class, but in truth this chart is ... just like the one I highlighted a year ago ... the only technical analysis on gold you need right now.

 

But ... if you're looking for more color on the short-term end of the stick, don't forget the tremendous resource that is Sinclair's go-to TA guy Trader Dan Norcini. Norcini stated today:

 

Monday must now be the new “Friday” when it comes to gold. Those of you who have been watching the gold price action over the last decade know what I am referring to. For those of you who are a bit newer to the gold game, Fridays, particularly after a payrolls report, have typically been the day on which gold was taken down by the bullion bank crowd to mess with the weekly chart and the technical picture.

Last Monday saw gold put in a horrendous bearish downside reversal day which the bulls managed to negate the rest of the week by a sheer gritty determination not to run. Today (another Monday) we have an exact repeat of the same bullion bank tactic that they employed 7 days ago; to wit, a takedown after price took out last Friday’s session high while gold mining stocks were also moving sharply higher. The result – an exact repeat of last Monday technically – another bearish outside reversal day on the daily chart. This coming on the heels of a brand new record high in Dollar terms at the London PM Fix ($1,261).

It is quite evident that the perma-bears at the Comex are determined to cap gold at $1,260. No one hits bids with the intensity that I saw this morning unless they are trying to take price lower. The reason is obvious – a closing push through $1262 and gold goes immediately to $1,280 – $1,285 garnering all the more headlines and casting more doubt upon the integrity of world’s current monetary system, which is under extreme duress. What the bullion banks are attempting to do is to form a double top on the daily price chart – it really is that simple.

Some are pointing to the stronger dollar as the culprit behind the weakness in gold, but that is denying the obvious and grasping for an explanation. Bonds are shooting sharply higher today and even the Yen is stronger as once again risk is back in focus and investors are moving to safe havens. Under such a scenario, the very notion that gold would be sold off as a “risky” asset is laughable for its stupidity.

The fact is gold was sharply higher after the conclusion of the meaningless G20 summit which was nothing but a group of yakking heads talking to hear themselves saying something. Investors rightfully interpreted that as further confirmation that nothing serious was going to be done that would restore confidence towards paper currencies. They then bid the yellow metal higher which held its gains from overnight as it moved into New York trading and even added some. We are then to believe that investors had a sudden change of heart so much so that they immediately became convinced at mid-morning that gold was no longer worthy to be held but instead US paper Treasuries were much more to be desired? Based on what news, what report? Come on already – are there actually people out there who are so damn dense that they believe this nonsense? This is what an orchestrated takedown looks like, pure and simple.

My own view is that this will meet with as much success as the previous Monday’s. Not a thing has changed in regards to the world’s monetary system – nothing. We always have to respect the technical price action because today’s markets are dominated by techies but those same technicals worked in favor of the bulls last week based on the price action Tuesday through Friday last week. They have to repeat their performance once again.

Let’s see how support levels function tomorrow and Wednesday. Chalk up today for the history books and forget about it. What is more important now is whether the bulls will hang tough and refuse to run. If they do not run, bears will be forced to cover as they did last week. As I mentioned in this past weekend’s analysis of the COT report, bears will have to force price down below $1233 on a closing basis to induce long side liquidation.

 

9 Comments – Post Your Own

#1) On June 28, 2010 at 5:13 PM, XMFSinchiruna (27.51) wrote:

A gold chart was supposed to appear above, to record the price action that followed June 2009:

Looks like the link is still not working. Does anyone know of a convenient charting site with direct-link urls forcreated charts? StockCharts.com doesn't seem to be doing it for me. :)

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#2) On June 28, 2010 at 5:15 PM, outoffocus (22.86) wrote:

+1 Good stuff.

We are then to believe that investors had a sudden change of heart so much so that they immediately became convinced at mid-morning that gold was no longer worthy to be held but instead US paper Treasuries were much more to be desired? Based on what news, what report? Come on already – are there actually people out there who are so damn dense that they believe this nonsense?

With Treasuries being considered the "safe haven" for the past year or so, yes, someone is that dense.  A whole lot of people are that dense apparently.  If people are willing to believe treasuries are safe havens simply because Moody's rates them triple A, I'm pretty sure I can sell them some bridges.

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#3) On June 28, 2010 at 5:21 PM, alberta911 (75.25) wrote:

Glad you read that 1100 page document

 It is no longer illegal to trade many uncleared swaps. Violating is now risk-free and legal.

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#4) On June 28, 2010 at 5:24 PM, XMFSinchiruna (27.51) wrote:

alberta911

Sorry ... I'm not following the context of your comment. :)

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#5) On June 28, 2010 at 9:05 PM, alberta911 (75.25) wrote:

The US financial reform bill just gave a bigger green light to manipulate gold and silver positions.  CFTC has lost all enforcement powers over uncleared swaps including their counter parties.

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#6) On June 28, 2010 at 9:14 PM, XMFSinchiruna (27.51) wrote:

alberta911

Well, I have not had a chance to delve into the current legislation. If you happen to have any links to discussion of changes to the CFTC enforcement authority, I would be very interested in reviewing that. Thanks for the heads up!

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#7) On June 28, 2010 at 9:36 PM, alberta911 (75.25) wrote:

http://financialservices.house.gov/Key_Issues/Financial_Regulatory_Reform/Financial_Regulatory_Reform062410.html

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#8) On June 28, 2010 at 10:58 PM, XMFSinchiruna (27.51) wrote:

Jim added some excellent commentary this evening to accompany the chart:

If the market for gold had not done its runaway/runaway common to overleveraged long morons, it would have broken out of the neat cup and handle formation going on to $1650. It will definitely break out of that formation.

The short term bullies that manipulated today’s market cannot manipulate the reality of the debt crisis away.

Today was the do or die takedown in gold by the mega hedge fund traders using the gold banks as beards for maximum effect. It was that because of the cup and handle formation. I know because I used to do the same thing on the other side.

Back in the 70s when the Middle East was the major buyers of gold they used a certain German bank as their broker constantly. When I wanted to run a large short position into oblivion, I used the same bank as buyers that represented the Middle East.

Nobody wants to buy or sell, only manipulate price, when they bid ten times what the offering is or offers ten times what the bid is in an open outcry market.

You have witnessed a pure operation by the bear hedge fund, just the same ones that are short of the junior and intermediate gold shares.

What has been painted in the gold market is also being attempted in the gold sharers. In time the futility of this will be very evident.

 

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#9) On June 28, 2010 at 11:46 PM, AvianFlu (39.90) wrote:

Manipulation may work short term, but the more effective the manipulation the more pressure exists to force prices to their point of natural equilibrium. Only an idiot would be shorting gold at this point.

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