Gold is bearish in the news, but bullish in the charts?

People in the mainstream media have started to become bearish of gold.  Perhaps it is because of the almost 1 year downtrend in its price?  Media is notorious for noticing trends nearer their turning points than nearer their onset.  I believe Gold may be a current example of this and actually be setting up a bullish signal versus a bearish one.

The chart below shows the price of gold over the last two years, including the seeming bull flag/triangle that is currently in formation.

Gold chart link

I see major support in the $1530 area, which once again today held.  This support zone allows a potentially good trading opportunity in gold.  With support just 2% below, a low risk higher reward buy opportunity may be presenting itself.  A purchase of gold here with a stop at $1520 (aggressive traders) or at $1470 (longer term traders) could be a good play as I am seeing bullish signs in the chart (in addition to the contrarian buy signal set by the media).

Besides the positive longer term divergence and solid support, a bullish flag/triangle looks to be forming with the red and black trendlines helping show points of recognition.  A break above the red downsloping line and then the black resistance line (notice the parallelism with the other black support line) would help solidify the bullish case.  A move beyond the recent high ($1900) would be a likely a target of such a breakout.

If all of this comes to fruition then it likely would mean a rally in equities as well, given the high correlations between gold and the equity markets.

Good Luck!

Gold versus Silver? Which one?

Gold and Silver are all the rage right now!!! Sell your gold and silver advertisements are in every mall, infomercial, and financial website!

Regardless of my position on gold and silver, an investor still should choose wisely between them. Looking at the chart above, you can see why. Currently Gold is significantly underperforming silver. In fact it hasn't been this undervalued to silver since the early 80s. This can mean a lot of things (for instance what occurred in the early 80s? - hint, they both started to free fall).

However, if you must own one of them right now. Gold looks to be the far better choice. Eventually this ratio will find parity which could mean it rallies back up to at least the midpoint on the chart of around 50x. This means gold should be 50x the price of silver, or silver should be 1/50 the price of Gold. With a current gold price of $1450 silver, based on these historical standards should be around $29.

Either way, a move up or down in the metals, Gold seems to be the better choice right now.

Good Luck

Short Term Hedge to drop in stocks?

One safe spot during this turbulent market has surprisingly been Gold. The chart above shows the SPX/Gold ratio which divides the S&P into the price of gold to show relative strength. Notice that the S&P since mid 2009 has been underperforming gold. This had a significant change at the April market top when stocks fell harder than gold.

The 2nd section of the chart is Gold by itself. You can see the up trend it has been in since late 2008. At the end of July Gold touched this long term trend line and has rallied since. This turnaround could be a signal that the markets are about to resume their underperformance. This also could signal a good hedge play to the shorts that I have suggested in the market. A long gold/short stocks strategy could be a positive way to utilize capital.

Watch that gold up trendline currently at 1115 to know when this trade may come unraveled.

Market Correlations - An essay on Oil Prices

In my Investment Philosophy (right side of the blog) I lay out a few examples of why markets are never fairly valued. In this blog post I will show another blatant example of this and explain what is the driving factor behind the rising price of oil.

In the chart below I have laid out the price of Oil ($WTIC) in black, the price of Gold ($GOLD) in gold color, and the price of the inverted US Dollar ($USD) in Red. The chart is over the last 3 month basis with daily closing prices. The first thing you should notice and the main point of this post is that since about April 20th these 3 markets have been eerily tied at the hip. As the US Dollar has fallen (inverted on the chart to show more clearly), the price of Gold and Oil have gone up.

As you can see oil, gold, and the decline in the dollar are all related somehow. The common denominator in the group is the $USD (since oil and gold are priced in US Dollars). Therefore, the move higher in both oil and gold prices is directly and this chart shows almost 100% related to the decline in the US Dollar's value. If you would have bought gold or oil in the past 2 months on supply and demand projections, peak oil concerns, China, or any other so called fundamental reason, you would have been wrong. The only fundamental reason to have bought those two assets is a play on the decline in the US Dollar; Any other reason and your gains are based less on a correct forecast, and more out of luck. This chart shows, at least lately, that if you want to know where the price of Gold and Oil will be, don't look to the fundamentals of those markets, look the the US Dollar market.