Questions, Questions: Gold, Aussie and Kiwi Dollars
February 1st, 2009WARNING: This is not a recommendation to buy, sell or hold any financial instrument.
I’ve received some emails from Aussies and Kiwis who are thinking about buying gold.
In summary: Hold off for now.
I looked at the U.S. Dollar Index, but that thing is so blurry, I can’t make much sense out of it. I see a lot of overhead resistance as well as a lower pivot on stochastic slow. I’m going to guess that upside potential on the dollar is limited and that there’s a marginally better chance of a move lower.
The picture on the Aussie dollar (AUD/USD) is also VERY blurry. If I was forced to make a call, I’d say there’s a 40% chance of a retest to .6000 and a 60% chance of a strong move higher. If .6000 doesn’t hold, the next stop is .5477.
The Kiwi dollar has wrecked in an astonishing manner, however, there’s a hard (monthly) support at (NZD/USD) .5026 just ahead. That’s a low from 1993. Shorts are very risky here. Any squeeze will drop the price of gold (priced in NZD) and provide a better opportunity for anyone looking to buy. I’m going to gradually start buying NZ$ again, since I’ve been holding off (leaving it in USD) during this crash.
If the squeeze materializes, very strong overhead resistance begins at .5928 and .6258 is the 38.2 fib retracement on the monthly.
Now, if it slips below .5026, the next stop could be .4788. Below that, around .4000.
Let’s quickly consider EUR/USD. It looks like there’s some downside potential into the 1.240 zone, but, again, while there’s potential to retest the low, it doesn’t seem worth it for shorts.
Does gold know something? We’ve got a break out higher on the weekly channel.
A weekly close above the upper channel line is a good thing for gold longs, right?
Spot gold, weekly interval
Well, you would think so, but my guess is that there’s going to be a concerted effort to keep gold rangebound (under $1030). While I won’t be selling even one gram of my physical gold, I’m going to buy deep out of the money February puts on GLD just in case things get weird again. I’ll do this as soon as Monday if it’s an up day.
What do I mean by weird? I mean that the U.S. Dollar Index somehow breaks out higher, above 88.
Don’t get me wrong, I’d like nothing more than for those puts to expire worthless, but gold is closing in on a major make-or-break level around $1030. Longs, you know the drill. Either this is it, or it isn’t. So many goldbugs are speaking in tongues now. Will it go to $1500, $2000, $3000, some wonder…
This worries me. A lot. I hope they’re right, but I’ll be taking those February puts anyway.
Any comments on the price of silver?
Even though I don’t understand any of the financial jargon, one thing you seem to be saying, expressed in layman’s terms, is that everything is so crazy in this early stage of the financial and economic collapse that what’s happening seems not to make any sense, or at least not any sense that might be readily understood. This will probably end up applying to a lot of things in our precariously-ordered modern world.
Technical analysis isn’t about trying to make sense out of anything. It’s about making guesses based on lines on a screen. That’s all this post is about.
Maybe I should have written, “I’m having more difficulty guessing than usual.”
I agree. Trying to invest/trade in this type of environment is impossible.
Best to hang onto “real” things and not trade trade the funny money…
I agree with your limits, the 1-day AO is still showing momentum, but a few days of diverence and that could be over with. We may be near the top of wave 1 daily on the wave 3 weekly, which means a pullback below the 8-day average. I suspect the wave 3 in this bull cycle to get us close to the resistance, with wave 5 putting us in the 1100´s. That´s about as bullish a call as I can make in the short term, such as the next two or three months.
Also, I think you analysis is discounting the probability that gold and the dollar index will remain decoupled. I think this decoupling is the key to the whole stage we´re in now.
I’d prefer silver if only because of the ratio. 15 to 1 historically, now 80? to 1… Should be, better? When there is about five times as much gold above ground than silver. And silver is more useful? The ratio could almost swap out, but never will. Just a better ratio, that’s all I expect.
imho, this reflects an early trend out of bonds. If the folks come to realize that u.s. bonds are in a bubble (and more do every day) at least some will choose the metals simply due to a blatant lack of any viable alternatives. Personally, I don’t trust the Swiss, or their bonds. For those like me, the metals are about the only choice left.
Another factor driving the metals is that people are also trying desperately to rebalance their portfolios: world markets all fell in 2008 on average 43 %. However, indexes are managed to mask the fact that most stocks, especially those outside of the index… which are not managed by the index keepers — DJIA, DAX, FTSE, etc, fell much more in % terms. The individual stocks have much more leverage than the indexes do, so a 40 % index fall means most stocks in that market fell 60-75 %. The manipulation of the indexes is very similar to the way that fed gov statistics like CPI, GDP, and unemployment are played with, and the intent is exactly the same: to whitewash the real numbers.
Gold is simply reflecting the changing realities on the ground. We are in a new age and given the lack of any historical precedent, establishing the real price of any of these commodities is almost impossible.
People reading may not understand how important dagobaz’s point is re: index weighting and composition.
See:
Price-Weighted Index
http://en.wikipedia.org/wiki/Price-weighted
and
Why the Dow is holding at 8,000
http://money.utalkitalk.com/Financial-News/why-the-dow-is-holding-at-8-000
i didn’t know the Dow was price-weighted. that’s mad.
my intuitive behaviour for years has been to ignore all narrowly based indices. i always look at the S&P 500 and TOPIX rather than the Dow and Nikkei. these indices can be manipulated far too easily to be taken seriously. particularly the Dow.