Friday, December 18, 2009

Gold, Commodity & Equity Markets in a Consolidation Phase

Today Gold broke its 50-day moving average (blue line in Chart 1), that had been its strong unbreached support since September 2009. With the dollar rallying (Chart 2), most of the commodity complex (including gold) has traded down as the carry trade unwound and managers booked profits at year end. At the present time we are waiting to see how far down gold trades. We do expect it to find strong support around India's purchase price of ~$1045/oz. If it breaches this then it will go on to test its 200 day moving average of ~$995, although we feel that there is a smaller likelihood of that happening.
If we were to examine the behavior of gold earlier this year, from April to September gold more or less traded sideways (see highlighted area in Chart 1), oscillating around its 50-day moving average (blue line). Once gold finds its level, we expect a similar sideways trading pattern to emerge moving into the new year. Both the equity and commodity markets are entering this consolidation phase where the market moves sideways oscillating without any clear direction in a range bound manner - as they wait to discern how economic and money printing news will play out in 2010.   
As before, we would like to reiterate to our readers that in the long term, the trend for the USD is still pointing sharply down and gold to go up. In the short run deviances can and do happen. And in all honesty we have been waiting for sometime for gold to trade down, so that we could add to our physical gold position. With a purchase spread of $70-$100/oz a cheaper entry point is highly desirable.
We conclude with some words of wisdom from Jim Sinclair: "If you can stand the heat in the gold kitchen it will protect you from the madness of monetary mismanagement, rulership of the banksters and capitulation of FASB. The alternative is to buy the dollar and get a spiritual experience without the need for a guru in the not too distant future".
Chart 1: Gold Prices

Chart 2: U.S. Dollar

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