Thomas
DeChastelain
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Bullion Charts and Commentary
posted Sep 18, 2004 at 02:17PM

Gold Bullion Daily



Everything looks fine here as long as moving averages hold support.

Gold Bullion Weekly



This still strikes me as being within the confines of a countertrend rally. It does show a successful bounce off the lower channel line.

HUI Daily



Key technical feature is the bull flag...which dove tails nicely with the EWA count below

Short-Term Elliot-Wave Perspective




USD Daily



Support is still holding and I am still of the mind that a major countertrend rally in the dollar will eventually ensue. A significant development are changes to the Eurozone Stabiity Pact...which basically has been gutted, to allow it's former champions, Germany and France, to run larger deficits

Inflation/Deflation Barometer



Yield/Spread




The above charts are for general information but my enthusiasm for thier usefullness is waning a bit. From Steve Saville's writings a shrinking yield spread is supposed to bad for gold stocks.

The rising USB/Gold chart should indicate the market is not afraid of inflation which should be good for the dollar and bad for gold.

And yet over the past year or so...drops in long-term bond prices (increased yield) has been supportive of the dollar.

As I said I am not a macro economic guru and there is something very counterintuitive to what is happening in that sphere...in the end, trade the chart you are looking at.

Discussion/Trading Strategies

From an Elliot Speak perspective the short term bullish case rests on the completion of an impulsive leg for the HUI. How far up it goes will depend much on whether the USD breaks it's intermediate term uptrend line.

Given that the wave 3 is about 30 points this gives us an upper target of around 230 although I would start thinking of tightening stops at 220..or keeping a sharp eye on the ask side of whatever stocks you are playing.

A lot depends on the environment of the time and what traders are keying on...if the catalyst at hand is the deterioating Iraq situation..then the move could have some legs..if it is oil testing prior highs then I think caution would be due.

My reading of the tea leaves would have me selling into this wave up. One it would complete a five waves up move and one would expect a retracement anyways, bringing it close to current levels.

Although this leg appears impulsive it is not clear to me whether this would be the first impulsive leg of a major move up...or a final C wave to finish off a countertrend rally. As of now I do think it is the latter.

Any significant weakness from current levels should not be taken too lightly. The 200 level and the trend-line are early warning signs. A move below the Sept 8 low is bearish although one could argue we are still in a wave four, and have not yet begun a wave five advance.

A move below 190 nullifies the impulsive count. It would smack of a fifth wave failure and would have very bearish implications.

Some Ellioticians see the double top as a fifth wave failure...if the countertrend rally ended in similar fashion, it implies that much of the basis for the gold rally has dissappeared, or is about to.

Now I am not saying that IS going to happen...I am just saying that .."if" it happens, it is a technically bearish event.

Again a safer route is to let the impulse ride out and watch the retracement. Obviouly a fifth wave up would correspond to a decline in the dollar. IN subsequent retracements it would retests old supports, and in a bullish (for gold) outcome would then confirm them as resistance. That to me would make for a good technical entry point for those with a view to holding longer term positions and a little more forgiving in terms of stock selection.

What we are watching now is the interplay of some major financial forces, and many smaller ones. The major forces behind the gold bull are still in play, negative real rates, lunatic US money management, trade deficits, mine dehedging....However some of the forces that were blowing on gold's back, are, for now no longer there.

Short term interest rates are rising, not falling.. is a big one. Changes to the Euro zone Stability Pack means a major support to the Euro is gone. Never mind the war on terror...the reintegration of East Germany into Europe is an immense task that will take decades and lotsa, lotsa money.

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