Thomas
DeChastelain
Memorial Archives

Bullion Charts and Commentary
posted Aug 20, 2006 at 03:42AM

Bullion Daily



Bullion Weekly



We need an up week or this chart starts looking precarious over IT time-frames

HUI Daily



HUI/Gold Ratio (short-term)



HUI/Gold Ratio (long term)



The strong support at .45 makes use the trend-line as a sell trigger kind of iffy. I would look more to the price action of bullion and the USD.

US Dollar Daily



Discussion

Well the world of "things" commodities oil and of course gold came under some price pressure last week. the internet is awash with deflationsist rhetoric that major tops are in for said things. They point to looming recessions, and abundance of supply etc.

Now I do think the threat of deflation is real and I know that it has made me a bit more conservative than I probably should have been in that I have always kept high values of cash in the portfolio. At the same time the arguments for deflation have not really changed over the entire course of the bull markets of things.

The rub here is that the reasons for the bull runs still exist. The debasement of US currency by the neocons not just spending money, but wasting it in endeavours that don't build up national wealth. The increase in demand from Asia. The increase in geopolitical instability which threaten the integrity of long term supply.

There will be certainly a time when things just can't get any worse in that regards, but I certainly don't see us as having reached that point yet. In my current thinking that point won't come until there is open warfare with Iran and/or North Korea.

As I mentioned gold came under some price pressure. There was no real intensity in selling, just buyers staying away.

Now this is a bit more grayish area from a contrarian stanpoint. This is not like when you have the ADX indicators at extremes where everyone is selling and nobody is buying ... given that you have determined that the underlying stock or commodity has real value, the contrarian then takes advantage of these emotional extremes to enter a position.

The question that is being asked right now is will sellers find a reason to sell before the buyers find a reason to want to jump in? Will the selling snowball as stop losses are hit?

Of course the real deflationsist fear is that lots of people still want to buy gold, they simply don't have the money to buy anything. Of course these days you can almost insert the word "credit" for money.

Given that I still am of the mind that we will have at least one more leg up before more technical retrenchment takes place.

When no one is buying what the market is doing is finding that price level below which holders will simply not give up their position. The price action on the HUI and gold is consistent with these being held in relatively strong hands.

What happens is that the market is getting rid, or bucking off the impatient, the bounce traders (hi there) the nervous, the ones who got caught at the peak and are now cutting their losses.

Along with that comes my estimation that it is a lot easier to find reasons to want to buy gold than it is to find reasons to sell positions.

Trading Notes

The move up from the June low to the mid-July IT peak appears impulsive. The price action since that IT peak is consistent with corrective action. i.e. profit taking from bounce traders, loss cutting etc

In last week's commentary I wrote, "A move below and then back above the 50 dma whould be interpreted as me as a buy signal."

That certainly happened on an intra-day basis on the HUI which saw aggressive traders buying in the latter part of the day.

Bullion has breached the 50 dma and bulls will want to see it go back over as some kind of confirmation.

Right now I am of the mind that my "one more leg up" scenario needs an up week from the gold sector. If we have another down week, then, although it is still possible that we are still just in a correction, my own specific view of where the gold sector is at, is out of whack, and I would probably stand aside and just watch and read.

The real reaon for my caution (or my growing impatience) is the weekly chart. Right now, EWA wise, I am of the mind that we are just about to finsih off an a-b-c correction. When you look at the weekly chart, one can see that any more downside start giving things a very ominous look, where one has to field the possiblities that a B wave countertrend is complete and we are starting a five wave C wave down..or worse a wave 3 down.

All trading positions should have stops and those I would base on the simple query of "how much do I want to bleed for these stocks?" Again taking a minor loss but retaining the ability to jump back in is much better than being stubborn at the wrong time.

Two things to key on are the bullion price and the USD price. Both are now below their 50 dma. One is going to climb back over and I think one can take their cues from that.

These are good techncial conditions for entry...but they are far from optimum.

Good trading

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