Hi all Here are some facts we need to consider when we make a decision.
COT The cot numbers are suggesting that the “smart” commercials are shorting with a high open interest hence it is likely that there will be a correction in gold. I do not disagree to that because history seemed to favour the commercials; however that does not mean that they are always right as Rowingboat has pointed out. The other side of the story is that they will have to cover their short if the price of gold does not go down as delivery time draws near and that will give a huge boost to the price of gold in short term (who knows if the longs are investors bend on taking delivery?) . However even if the shorts were to win the downside is limited because of the many other bullish factors.
Seasonals Given that the price of gold has stayed persistently near or above 900 dollars for so long it is not unreasonable to expect that the psychology or a new low in gold price is above 900 dollars. That is it is reasonable to say that buyers have now come to accept 900 dollars as the new base price. Hence it would not be unreasonable to expect the Indians and Chinese to come back onto the market to purchase gold even at over 900 dollars. The seasonal chart suggest that from August to around March is the best gold seasons, hence I do expect a strong demand from physicals which would give a floor to the price of gold in the next couple of months. By the way there is a lot of truth in the seasonals because beginning in August you have the Indian festive seasons after that is the Chinese festive season where the 8 month and the 10 month in the Chinese calendar is the best gold season for the Chinese apart from Chinese new year. That is because those two Chinese months have the most marriages taking place hence a lot of gold buying. After that is the Christmas and New Year. The Chinese has just overtaken the Indians as the largest consumer of gold (from financial sense in one of the interviews and that is jewellery demand not central bank buying.)
Chart bullish The other thing that gold has going for it at the moment is short term, the price action has broken out of a channel in the daily price action not too long ago hence even if there is a change of trend short term it would take some time for gold price to break below 900 let alone 800 or 700 (unless there is some very gold bearish events like the Fed or governments reigning in their spending) at which time other bullish factors would have kicked in.
Concerning Elliot Waves I would note that there are disagreement in the wave counts among Elliot Wave analyst. Some believe the coming wave is the third wave and some believe it is the fifth wave. It is clear really in hindsight. Hence we need to monitor their analysis as time goes on for their analysis may change with the price action. Please not that I am not saying that gold will not go down to say 700 dollars but the probability of it doing so is slim. Ronald Rosen is one Elliot wave proponent to say that it is possible for gold to go down to 700 before a rebound though I disagree with him. Others would include the guys in Elliot wave. If one is not sure than perhaps it is good for one to wait till gold make a decicive break above 1000 before pulling the trigger.
Then we have the stock market in rally mode now. Some technical analysts are saying that the stock has just turned the corner at least in the short to intermediate term. (By the way that is my position too not because the economy has recovered but because of the amount of money pumped into the system) This can be considered to be gold bullish or bearish depending on how you read it. This will possibly bodes well for gold stocks especially when gold stocks is trading at prices reflecting gold at 700 rather than at 900.
And lastly the US dollar. My opinion is that it is not necessary that gold would go down when the us dollar goes down though that seemed to be the case in many instances. But there are cases when the dollar stays flat and gold goes up and instances when gold goes up together with the dollar. In my opinion in the longer term gold will go up not just against the US dollar but against all other currencies including the Australian dollar though it may be up less against the Australian dollar as compare to the US dollar. Moreover as far as the short term and intermediate term chart is concern the US dollar index is far from bullish and I will stay bearish on the US dollar until the price action says otherwise.
In any case we will know very soon which way does gold goes as the weekly and monthly gold chart is forming a triangle and the apex is right around the corner, hence gold will have to break either way soon. Of course my believe is it would break to the upside with so many bullish technicals and fundamentals
Lastly let us do our research and have faith in what you believe in base on the facts that we have glean. Do not be sway easily by anyone’s opinion. However do not discount new facts that come to light over time too.
