Thomas
DeChastelain
Memorial Archives

A Quick Look At Gold - The Christmas Edition
posted Dec 24, 2005 at 12:31PM

Introduction

Of course let me start by wishing you the best of the season to you and yours. If you are reading this, and doing other market reading over the Holiday Season, then that can only mean one thing...you are a keener. I salute you.

Time, I am sure, is at a premium, so let's get down to brass tacks.

Bullion Daily



If I was forced into disclosing an "official" position, I would say that bullion has fomed a significant IT trading top. The recent bounce is countertrend in nature. Think wave 2 or a wave b of some degree in Elliot Wave terms. I expect at least one more downleg before the bullion spring is fully reset for another major leg up.

Gold Seasonality Chart

Seasonality is still in bullion's favour, although historically it tends to peak areound the third week of January. After that seasonality starts working against bullion.

Gold COT Data

As you know the COT covers trading up to the close of Tuesday trading. As such, I was very keen to see this week's COT Data as it would more accurately capture bullion's drop from its highs. Quite frankly I was a bit shocked to see that the overall COT picture has not changed appreciably. I really had expected the commercials to have covered a good chunk of their short postions. The fact that they haven't suggests that they expect the future will give them an opportuntiy to do so.

I know there are articles out there that argue that "COT does not matter". Those arguments have been there for awhile and I am not in that camp.

One reader made the suggestion that perhaps the ETF are now the prime drivers of the bullion price, superceding the influence of the COMEX.

I must admit that is a scary thought as it would mean that my time waiting for the COT to "reload" may be a rather futile exercise. But for now I remain in the "COT matters" camp.



HUI/Gold Ratio



Another twist has been the very strong relative performance of equities, which have held up in fine fashion in the face of dropping bullion prices. They could the benificiary, like most equities, of year end window dressing. Or perhaps what gold stocks like even more than rising gold...is a weakening USD. This chart gives big points for the bulls.

HUI Daily



My thesis that the gold sector is in the midst of a correction requires that the HUI drops below 250. Until that happens I am on the outside looking in.

Trading Discussion

Again I am leery of giving strong trading advice. My antipathy towards buying gold stocks right now has as much to do with my individual portfolio management, as it does with my interpretation of the gold sector. I have no doubt that is affecting my interpretation and has me leaning on the bearish side of things. I guess my dream scenario would involve my current holdings to continue rising...perhaps some nice melt-ups, even as gold corrects and then allowing me to flip over into a strategic position of gold.

Of course everything I do own are "inflation friendly" so I am asking for some pretty big stocking stuffers.

There is a lot for gold bull technicians to pound the table about. With the breakout in other major currencies, (Euro, Rand, Yen) bullion really is in a sweet spot. Now the moves in those currencies are a little long in the tooth and due for retracement. The rub here is that any stiffening of local currencies implies weakening of the USD, which rarely means bad things for all things gold.

As such a lot of my spare time has been spent looking at the balance sheets and drilling/reserve reports of speculative explorers. The aim here is to have a basket of speculative vehicles ready to jump into at a moment's notice.

It is a bit of a motherhood bromide, but I really do believe that risk mitigation and portfolio management need to be looked at as we enter the new trading year.

Good trading!

Bullet Bullet Bullet