Thomas
DeChastelain
Memorial Archives

Gold Sector Update
posted Sep 12, 2004 at 12:45AM

Introduction

More "jostling" which tempts one to compensate with superfluous commentary.

The bottom line is that the technical picture is little changed from last week. Going into the 9-11 weekend bullion regained the momentum edge, but the both the dollar and gold are in similar positions relative to key moving averages.

The silver bull branches creaked very loudly, but did not break. Gold equities (HUI) came under the 200 swing line, and then back over...a bullish price development...but then sold off sufficiently hard in the last hour of Friday trading to nicely muddy the waters.

On the broader front, although money supply growth is declining, the Fed is making astounding amounts of money available for temporary operations. This along with record corporate share buy-backs have some very good analysts (not just the usual perma-bulls) stating that a substantial rally is in the works.

Contrary to popular mythology, I believe this would be supportive of gold equites. The last thing gold stock owners want to see are collapsing world equity markets.

As for myself I remain suspicious of paper. I partook in some trampoline bouncing but the only area where I have any kind of "buy and hold" sentiment at all, is in some beaten up natural gas stocks.

One slight difference from last week is that I was finding myself looking at explorers of all types with a more favouable eye.i.e. gold, natural gas, nickel, copper...many have good prospects, cash in the till and have been severely beaten up. Now watching is not yet buying, but they are definitely on the radar screen - especially if the market signals that the global economy is still on track. (See Asian Market Charts)

I have not, as of yet, taken any positions on playing a potential wave 5 bounce. (My "EWA" based trades tend not to work out that well) Technically some stocks are nicely positioned I think for such a play, ...I just didn't get that warm and fuzzy when looking at the market depths. The perverse guiding logic I am using right now is that the key to making money... is to take all reasonable steps to make sure you don't lose any money.

Things really can go either way here...and when markets become unpredictable...good trading practices are essential.

Now on to a selection of key charts.


Gold Daily



Bullion finds itself wedged between 50 and 200 dma's. Momentum indicators are in nice shape to support upwards movement.

Silver Daily



Bearish price action...but key price support levels hold. 5.91 is a big line in the sand. Technically gold and the dollar are in a stand-off but silver has the potential to be an albatross on the sector.

Silver Weekly



USD Daily



I think if the the Fed had their way, they would keep the USD within a narrow range of 87-90 for years to come. For the most part, they were quite content to let the dollar fall over the past years as it aided in thier reinflation attempts.

However, any sustained weakness from this point onwards would start scaring a lot of market participants and possibley start some ugly chain reaction. For that reason, I think they would move heaven and earth to keep the dollar from going down too much.

Of couse a rapidly rising dollar has a deflationary impact, and given the huge leverage involved in the carry trade can induce similar results.

The only way out of the pickle is a sharp decline in the oil price which would free up enough liquidity to keep the "system" a float while they reload their interest rate gun.

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