a word of caution

I thought some of you may be interested in the following. It comes from Bill Cara's Week In Review and his blog last night. You should all read it. For some background, Bill turned short term bullish on gold back at $875 a few weeks ago. The price subsequently fell to $860/5 and has risen till now.

This from his WIR:

Gold & Precious Metals Review

One week ago, $GOLD lifted +$14.80/oz and two weeks ago, the rally was +30.10/oz. This week, $GOLD rallied +$26.10 (+2.80%) to 957.40.

Three weeks ago in this space, I wrote: “It’s not looking strong, but has every reason to rally here.” I pointed you to 980-1000, which is clearly in sight. But after that I also pointed you to a significant pull-back to scare you into believing the Fed actually does have power, which of course they do even if it’s not much at times and is illegal insider trading at most times.

I hate that situation where the Fed and their broker and the US Treasury get to flash their orders and also control the bulk of the gold inventory (they say). The rest of us have to guess, which is no fun when real money is on the line.

I guess there is a pun there in that we don’t want to hold fiat money because we don’t trust these people in power – those masters of the universe.

The gold 50d Moving Average is now at 911.40. The 200d MA is 857.73. When these lines were crossed by rising prices, I wrote in this space, “so technical resistance was crossed, and higher prices are expected.”

Three weeks ago I wrote here: “My biggest equity positions, by far, are in the goldminers. All the others combined amount to less. My second biggest position is in the oilers. So, while I’m not happy with the goldminers, the oilers did produce good results this week.”

A week ago I wrote: “Drum roll because this week the goldminers ($XAU +14.82) soared and so too did XLE (+9.67%). My next biggest position was the short in long US Treasury Bonds and that trade has worked out very well indeed.”

Wow, they all worked out well this week. Bonds got smashed; Dollar was crushed; Oil soared and Gold and Silver lifted. The goldminer stocks had another Bull run.

A week ago here I wrote:

“$XAU, GDX and XGD this week were mixed (-1.08%, +0.40% and +2.89%, respectively W/W). All three were losers on Friday when the $USD was very strong (+0.81% on Friday, but only +0.59% up on the week). It’s a harder call right now, but I tend to think the gold price will have a quite surprisingly strong spurt, attracting interest in the goldminers. Pop and then it’s over. I plan to sell into strength as I see no reason, at this point, that traders are anxious to buy gold to the moon, especially as I think the rest of the broad equity market is facing a real tough couple months… You know, with margin calls, brokers sell out the whole portfolio. There is no hesitation or picking over what you are hoping they don’t sell. Hope only works on the south side of Chicago… Be careful not to get sucked in should gold and goldminer prices have a run to the upside here. It’s the full cycle you have to be accountable for.

This week, $XAU, GDX and XGD soared +10.68%, +11.71% and +6.39% respectively. We are now (i) expecting that final pop, and (ii) starting to take profits. It’s been a terrific run.


The Goldminer indexes, ETFs and stocks powered north again this week: $XAU +10.68% to 151.40; GDX +11.71% to 42.06; and XGD +6.39% to 20.80.

Two weeks ago, the prices had soared, so the small pull-back of a week ago was healthy. I opined a week ago in this space, “There was a loss on Friday, due to a soaring $USD, or else the three indexes would have had good gains [on the week]… I still believe there will be a Bull run based on an injection of capital into markets in the coming weeks (that will flood into stocks), hoping to help the banks that are trying to float as much new stock into the market as possible at this point. The recent few days has set an all-time record. That has to be a positive for gold.”

Bingo.

This week Yamana (AUY +20.5%), Kinross (KGC +13.6%), Barrick (+13.5%) and Goldcorp (GG +11.8%) were are soaring.





Then this was a question posed to Bill by a reader:

Bill,

Happy Memorial Day.

You've been doing this about ten times longer (or more) than me so I can't think of a better person to ask....

You wrote in the WIR regarding gold:

"We are now (i) expecting that final pop, and (ii) starting to take
profits. It’s been a terrific run"

My question....Isn't an increasing proliferation of Obama bailout dollars and/or the dollars diminishing respect as a global reserve currency increasing the POTENTIAL for gold to move permanently to a triple-digit price? And shouldn't silver become a 50 dollar item anyway? Won't some of this depend on whether we have stagnation AND rising prices or stagnation and "true" deflation? Doesn't gold need to see a fiscal conservative nearing the oval office vowing no more bailouts, and even then it may be too late, in order to hold back the reins on that gold hoss?

I've got a strong feeling that gold, as expensive as it now seems, is about to become that much more expensive. If the recent price action is a consolidation pattern then wouldn't a true breakout to new highs combined with a departure from that consolidation auger "much" higher prices? Or is that recent pattern some kind of top?

To put the question another way, where do you imagine that the "final pop" you reference may take gold price wise, and what precisely do you mean by final? Final for this year, final forever? Let us know. Is it time for Kaimu to get out the shovel and trade all his pirate's treasure for fiat currency?
Boy that's hard to imagine:)


And Bill's reply:

shark and others, re my comments on the price of precious metals:

Before they started to move, I anticipated a run to maybe 17 for silver and to maybe 980-1000 for gold. That was a very short-term call, and if it happened I said I'd be looking to sell my positions into strength because the US Dollar is extended on the downside to permit the market to stay high while HB&B does its required financings. But any day now I think the risks are too high that the Fed will step into markets with a boost for the $USD and a knock-down for precious metals. If I thought the pull-back would be a mild one, I'd hang in, maybe buy some inexpensive protective puts, etc, but in fact I think the down-draft could be a serious one, and it will likely extend across all sectors and most industries for several weeks, possibly months. Hence I will be happy to stand aside.

Longer-term, I have opined that within the next 18 months, I believe that gold will be 2000-2500. I also believe it could go much higher within 3 to 5 years. But, in my stating time and again that my decision-making horizon these days is one day to three weeks only, and even that could come down if I see a slide in market prices, I was thinking very short-term when I wrote that comment.

At the end of the day, managing risk is all-important to our success. So, when you see the $USD plunge from 87 to 80 in a single month, you have to recognize the risk of Fed intervention is soaring. I have a lazer focus on risk, and try to make gains when the risks are acceptable.

I recognize that, with gold and silver, the biggest gains by far are when the risks are greatest. But it is one thing for me to trade minute-to-minute and another to write a free blog for an international community that trades on average maybe a dozen or two times a year, and who only has so much time available for reading.

I appreciate your asking for clarification though because I constantly have to remind myself to do a better job in linking discussion to the time frame.




Now Bill's analysis is not to be sneezed at. His timing is impeccable generally, I have witnessed a number of things Bill alludes to in his WIR happen exactly as he suggested they might, that very week.

I think it would be remiss to expect the Fed/Cartel etc to allow gold to just keep on heading up through $1000 and into blue sky.

It seems heaps of you saw my post re the gold equities breakout (thanks for all the thumbs up). Unfortunately TA can't predict a huge force entering the market to stamp its authority on it.

Personally, I will be taking Bill's advice. The USD is extended on the downside on the RSI and the HUI/GDX are in overbought territory on the RSI. If I see the slightest hint of Fed intervention (ie a plunge in gold out of nowhere), I'll be closing out my positions short term. I have raised my stops on all my gold shares and plan to try and keep a good portion of the profits I have made in the last 6 weeks. Bear in mind though, my timeframe is pretty short term now. If price soars through to new highs, back in I will be, and if the shares plummet, back in I will be. I'm sure I'll miss some profits, esp in individual miners that move on news, but I'd rather suffer an opportunity cost than a real cost through losses.

Its just that right here, the risks seem a lot higher than they did a few weeks ago. I just can't get the feeling out of my head that the Fed will fight the $1000 level with everything they've got. Over the last few years it seems buying gold on weakness is a less risky proposition than buying on strength (ie breakouts)

Anyway, just my thoughts

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