Wednesday, March 19, 2008

the Trend is yer Friend!

since the summer of 2006 I had been predicting that the next major top in Gold would be right around $1000 an ounce. as you must Know we first hit that last Friday. I didn't get back from the Colombian border until early Saturday morning so I missed all the action last week. just as well, cus on Sunday night the Asians got crazy and pushed the price up over 1030. I went short at about 1023 with a stop loss of 10 bucks. so far so good, though I took profits on 25% of the position on the weakness after the Company Store announcement yesterday afternoon. (and the longer I spend writing this morning the higher the price is going...)

so is this going to be a real multi-week correction that brings prices back down to the range of the longer term moving averages? frankly that is what I have in mind, though at this point the probability of this projection panning out may be pegged a little below 50 percent.

first let me give a little background on my estimation that we are at a turning point.

1) I didn't just pull the 1000 level out of a hat, there is actually a numerological analysis associated with it. when it became evident that the price had topped in May 2006, I noticed that from the bottom in early 2005 the price had ascended percentage wise an amount comparable to the period from 2001 to December 2004. I have called these moves 'chapters' in the bull market. while they may correspond to (motive) Elliot waves, I don't want to get caught up with doctrine and insist there are a predetermined number of them coming down the autobahn der zukunft. I call them chapters because each one reveals to us more of the plot. gold is great storyteller. as Neal Stephenson wrote, 'gold Knows things that no man does.'

so if you do the math from the lows of the 2006 correction (I use the London PM Fix as the basis for all my longer term calculations) you'll see that a target of 1000 (give or take a percent or so) for this third chapter would be in keeping with the magnitude of the first two chapters.

there you have the primary reason for my hunch that the market's going to turn south for a bit. but there's a couple other things as well.

2) anecdotal numerology. about 5 years ago, with the lead up to the Iraq war, gold hit a high of 382.10. multiply that by 2.618 and you get, oh my goodness, a thousand and change. then about two years ago gold topped at 725. times 1.382 that comes to much the same number. yeah, so what if the high PM Fix was Monday's 1011.25?, good enough for government work I'd say. (but if you see a PM Fix above Monday's, then I urge you to throw my forecast out the window. well, print it out first, I doubt you want to throw your computer out the window. unless you have one of those military grade collision proof laptops, then I guess it couldn't hurt..)

3) everybody's bullish! everyone I've talked to recently, the vast vast majority of the 'analysis' and news coverage that the internet so kindly provides me can conceive of nothing but trend continuance. the Trend is yer Friend! (his name is Brutus.)

late last year we started seeing a bunch of articles touting $1000 gold. but now I'm seeing headlines proclaiming that gold will in fact reach $2000(!!) before the end of the world commences. not that I have any doubt that will come to pass before all too long, in fact a call for 2000 seems hardly the radical pronouncement, but the fact that it's headlining in Cyburbia tips one off that the Thieves are on the prowl, or conniving around the water cooler in Lower Manhattan, as it were.

well the NY market just opened, and the price has started to weaken the last hour or so. there's much more to contemplate with gold, it is after all the topic eternal. but for now I'm going for a walk. I find that being away from my desk the first hour of trading saves me headaches and likely money.