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A Must See Gold Chart For Serious Investors And Traders, Part 1

Why is this gold chart a must see chart for serious investors and traders?  The answer is simple.  Those who have followed along have profited handsomely by buying a large core position aggressively in $600s, selling half of the core position at $1904 and selling the remaining half at $1757, undertaking a large number of profitable short-term trades from the long side during the gold bull market, and undertaking a large number of short-term trades from the short side to profit from the gold bear market. 

At The Arora Report, we rely heavily on adaptive algorithms that take into account many, many factors.  In our research, the four most important factors at this time are technicals, quality of ownership, inflation expectation momentum, and sentiment momentum.  All of the four important factors are shown on the chart of popular SPDR Gold Shares ETF (GLD).

 

Please click here for an enlarged chart.

This is the first in a series of four articles.  In this article, technicals will be addressed; the other three important factors will be addressed in subsequent articles. 

Symmetrical Triangles

The chart shows two symmetrical triangles markets by orange colored lines. 

A symmetrical triangle is formed when the prices behave in a manner such that the price range is wide in the beginning and contracting as time progresses.   Symmetrical triangles are important to watch because they lead to break outs.  A break out can be in either direction.  A break out from a symmetrical triangle in the direction of the trend happens far more often than against the trend.  For this reason, symmetrical triangles are often considered as continuation patterns; however, sticking with the assumption can be dangerous. A symmetrical triangle formed in the price chart of gold at a time when gold was approaching its highs broke to the downside as shown in the chart.

 Right now, gold chart is forming another symmetrical triangle as shown on the right-hand side of the chart.  In the big picture, gold trend is still down.  Therefore, chances of  this triangle breaking to the downside are higher than breaking  on the upside. 

Fibonacci Retracements

Leonardo Pisano Bigolo, popularly known as Fibonacci, was an Italian mathematician who originated many concepts that are still in use today.  Fibonacci retracements are ratios that are useful in determining potential reversal levels.  The chart shows Fibonacci retracement levels at 38.2%, 50%, and 61.8%.  In the big picture, gold retraced to the 61.8% level.  Often 61.8% level marks the bottom of a cycle  The next retracement level is 76.4%.  The retracement of gold to this level cannot be ruled out.  .  In the big picture, such retracement will bring gold price to the bottom of the target zone shown on the chart.  The point is that there is still significant downside risk in gold; this risk will be alleviated if gold continues to meander between 50% and 61.8% for a few more months. 

Very Long-Term Target

As my long-term readers may recall that when I issue an unequivocal signal to sell gold at $1904,  I forecasted the target zone shown on the chart.  That call has proven spot on as gold dipped one third of the way into the target zone. 

Near the top right-hand side, the chart shows the very long-term target is above $2500. 

Smooth Channel

The chart shows a smooth channel in which most of the rise in gold occurred from late 2008 to mid-2011.  Orange colored ellipse on the chart shows the area in which the channel was decidedly broken to the downside.

At this time there is no indication of the formation of an upward trending smooth channel.  In other words, there is no indication of a generational up move at this time. 

Mirror Image

Mirror images are quite common in the market.  In this case, we are on the lookout for the start of the mirror image of that pattern that started in late 2008 in gold marked as start of a strong bull market in gold. There is no indication at the time of the start of a mirror image. 

Parabolic and Exhaustion

The chart shows the parabolic move that started in July 2011, and the chart also marks the end of the parabolic move.  A parabolic move typically ends in exhaustion.  This was the case when the buyers of gold exhausted their buying power in August 2011, and gold fell as shown on the chart. 

Ideally, we would like to see a parabolic move in the present down trend followed by exhaustion on the part of the sellers.  If such exhaustion occurs, that will be a clear mark for the start of a generational up move.  However, such a parabolic move followed by exhaustion to the downside has not yet occurred. 

Higher Highs, Higher Lows

For the present down trend to reverse strongly to the upside, we are on the lookout for higher highs and higher lows similar to those that occurred between 2009 and 2011.  However, as the chart shows, there is no pattern at present of higher highs and higher lows.  This means that the recent up move in gold is suspect. 

Conclusion

The sum total of the technical analysis is that there is not yet strong evidence of the start of a generational up move in gold and the downside risk remains significant. 

Current Ratings On Gold And Silver

We continue to rely on our adaptive algorithms i.e., the weights of inputs change based on conditions and co-relations. The adaptive nature of the algorithm has been the most important reason behind consistently accurate calls on gold and silver by The Arora Report over the years.  Experience has shown that algorithms that are static stop working after a while because market conditions change.   For this reason, investors and traders should avoid algorithms that are fixed.  Inputs to our algorithms  include  factors such as relationship between currencies, interest rates, sentiment, money supply, global geopolitical picture, global GDP growth, inflation in key countries, leading indicators of inflation, risk appetite, etc. 

 Here are our current ratings.

  • Very negative in the very, very short-term.
  • Negative in the very short-term.
  • Neutral in the short-term
  • Mild negative in the medium-term
  • Mild Positive in the long-term.
  • Positive in the very long-term.

These ratings are reviewed daily and changed frequently to help both long-term investors and short-term traders.  These ratings are used by bullion dealers, jewelers and investors across the globe.  For definition of time frames, please click here.

Full Disclosure:  Subscribers to The Arora Report are provided precise buy zones and sell zones as appropriate.  Further, subscribers to The Arora Report may undertake short-term trading positions in addition to the very long-term generational opportunities.

By Nigam Arora

Chief Investment Officer
www.TheAroraReport.com

 

 

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in precious metal products, commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.
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