When will Gold rally begin?

[Mercury]

Like many contrarians I believed Gold would rally off the Monthly Fib 50% and I also believe that it is the only asset worth holding in the current financial environment.  Interestingly Gold has been tracking stocks of late (or at least there is a similarity of movement) having been in a bear since 2011 in line with pretty much all commodities.  This recent rally is also in line with other commodities but in the case of the others I anticipate another large leg down whereas with Gold I think we will see a long term Bull as stocks and bonds crash.  

 

The Fundamentals

The reason Gold is different to other commodities is that it has no intrinsic value as a commodity and yet it is a physical asset like a commodity.  It primary uses are jewelry and as a store of wealth.  I think Gold increases in the post credit crunch rally (at least up to 2011) and this year are simply as part of diversified portfolios but this relationship may disconnect during a widespread market crash as Gold becomes the safety repository du jour.  I do not think the disconnect has yet occurred and probably will not until until close to or just after the asset bubbles burst, which I do not think has happened yet but may be close.  Commitment of Traders was at all time highs on both Gold and Silver last month, signaling a reversal bear move, and now that pressure is easing off a bit but for how long?  Alas it is not as simple as thinking Gold will rally as stocks drop, as can be seen with historic movements and also of late.

 

The Technicals

I have vacillated on whether or not Gold has put in a wave 1 or A top or has another leg up to go.  If Stocks and bonds go on another leg up one could see Gold and Silver do the same but if stocks then crash will Gold do likewise or rally away.  Currently my view is that we have indeed seen a wave 1 top and are currently in a wave 2 retrace.  On Silver this could reach close to the Fib 50% but on Gold we are only approaching the Fib 23%.  It is not unusual for Silver to gyrate more wildly than Gold so that is not an issue.  However a wave 2 retrace that is only 23% is not very strong so either we are setting up for a major wave 3 rally (definitely possible...) or further retracement is on the cards.

 

On the Daily chart below there is a Triangle formation encompassing the retrace so far and if it runs in a A-E fashion then a touch on the lower edge soon could bring up a rally.  Alternatively we could see a deeper retrace towards the Fib 38%.  Alas it is murky on this market just now so patience is required.  I would buy a strong bounce off the lower Triangle but might sit out a breakout down to wait for a later buy signal.  Until things clarify I think there are better opportunities elsewhere just now.

 



 

 

[Guest Ken]

Hi 

 

I believe in the A-E fashion with the expectation of no Fed rate hike.

Down to around 1290 till Wednesday, then the wave 3 until December.

Wednesday will be very hard to trade, they can push it till 1260 before going up...

 

Of course it all depends on Fed. 

I think fed will pass again.

 

What you think ?

 

Cheers!

[Mercury]

I do think the Fed will do nothing again  but I couldn't bet the house on it.  I also think this market comes back down to the lower Triangle line area before a strong rally away if the Fed bottles it again OR a strong move down if they do grow a pair...

 

I am not so sure about it being a strong wave 3 **** he set up might support that but either way a no USD rate rise is a good place to get Long.

[Mercury]

 I should have also added to my last post, as I have mentioned elsewhere, that we have to be in our guard against a pre FOMC rally given that the odds seem to be at about 15% for a rate hike.

[dash1]

It is very unclear as to what the federal reserve is going to do. I don't think, they know what they going to do themselves?

 

Numbers last week do not suggest that they are going to interfere with rates this month. If I recall correctly, retail sales and factory production was lower. I guess the attitude should be let's just wait and see.

[Guest Jambo]

Hearing the BOE a week before, they gave a good idea of what the decision was going to be a week later. On the other hand, all FED speakers seems to have different decision on the rate hike and they are causing more harm to the investors. I think that the fed won't increase the rate in September as all other Central banks are looking into another decrease.