gold on the cusp of a massive breakout, page-30

Champ, I'm not going to get in an argument with you but I leave it to people who want facts to look at the DJIA chart and the gold chart for the period I mentioned and ascertain the following facts;

15Jul08 - Dow 10962 / gold $976.60
11Sep08 - Dow 11443 / gold $746.80

The above are fact not fiction! Gold dropped $230 oz whilst the Dow rallied 450 points.

So your statement that GOLD was slaughtered last year with every other asset does not ring true with the above data! Gold actually moved inverse to the Dow for the majority of the bear market. Gold actually rallied from Oct08 to Feb09 whereas the Dow plunged during the same period. The fact is that during the counter trend rally in the Dow from Jul08 the PM's were slaughtered.

What you and the rest of the gold bulls fail to recognise is that the major reason for such a large plunge in gold in 2008 was the fact that the OI and commercial shorts were at extreme highs which in itself is potentially bearish but then throw in the ETF gold funds holding of bullion held by the weak handed and the fact that EW count wise the gold market was correcting from a top and you get the massive sell off! High OI plus High net commercial shorts plus High GLD ETF gold holdings plus an unsupporting EW count equals carnage!

Today you have the same set up but what's worse is the ETF holdings of bullion are around 30% higher than they were in 2008. If the commercials are able to engineer a sell off in gold again noting that EW count wise gold is near a top and the USD close to a bottom then $700 bottom for gold may be a best case scenario. Most gold bulls fail to recognise the significance of a rising gold price not being reflected by the XAU, HUI and GDX.

Some more FACTS for you! Starting from the May 2001 breakout of the HUI and the gold price we can confirm the following;

HUI Breakout/New High Gold Breakout/New High

Feb02-Jun02 Feb02-Mar03
Jul03-Dec03 Nov03-Jan04
N/A Nov04-Dec04
23Dec05-May06 16Sep05-May06
Sep07-Mar08 Sep07-Mar08

1. What the above statistics show is that the HUI has broken out to new highs with the gold price on two occassions at the same time.
2. The other three ocassions the HUI lead gold once and gold lead the HUI twice.
3. In Nov04 the breakout in gold was not confirmed by the HUI even though it traded within 4% of breaking out. Gold subsequently traded sideways for 21 months using the Jan04 high as support.
4. The one time gold lead the HUI on a sustained breakout the HUI traded at 11.5% below it's breakout high.

So we have one case where gold has lead the HUI on a sustained breakout whereas we have three cases where the HUI either lead gold or broke out with gold to new highs at the same time. Today the HUI trades at 30% below its March 2008 high. The one time Gold lead the HUI the HUI traded 11.5% below it's prior high. We have negative divergence on the HUI chart and gold approaching resistance in the $980 area. The fact that the HUI trades so far below its March 2008 high should be a warning to all gold bulls!

The reaction I'm expecting is only days maybe a week or two away and coincides with top in metals, FX and commodities and a wave 5 of wave B bottom in the USD. Key areas to watch for gold are the pivot lows at $924.80 and $904.10. If these are taken out my call will be "Look out Below". Below is a link to a free update from Breakpoint Trades. Have a good look of the chart supplied by EW International showing the USD wave count but more importantly the 10 day sentiment index for the USD. Have a good look at that chart because it is telling you that the index is sitting below the Jan08 level which is unsustainable. I suggest you also look at what happened to the USD in Jan08. But most gold bulls will argue this time is different because they are printing money. The USD is dead etc.

http://breakpointtrades.com/controls/preview.php?la_id=732


Risk/Reward wise the best investment is to go long USD and short the commodities and currencies that have negative correlation with the USD.

Time will tell! If gold can take out and hold above $1050 for 7 days then I will accept I was wrong but with the OI rising by 9500 contracts last night on a flat gold price I expect the games to begin in the not to distant future. OI is now 392834 contracts. The last time OI traded at this level gold dropped 10% in 5 weeks. The problem with a drop below $920 if it occurrs is that gold would have broken down out of a symetrical triangle giving an initial target of $780. How many goldies holding GLD CFD's are watching that triangle??? The commercials are probably rubbing their hands together in eager anticipation of things to come. The good news is the top of the triangle is $980ish so the bulls can still cling to their bullish outlook. Somehow the actions of NCM and LGL are not telling me that the triangle break is going to have a bullish bias.

As I keep reminding you, we have one more leg down and then we load the boat. The one unknown is whether the AUD plummets just as fast as the gold price thus keeping gold in AUD terms trading in the current band or not. I would definately not be holding PM stocks though!