Gold traded in the extremely wide trading range of between US$930 to US$830 throughout last Friday, 10th October 2008, with most of the candle's body bounded between the SMA200 Resistance Level and the SMA50 Support Level. There are ways to trade such a Short Term Outside Day Price Pattern, and whilst I have studied the ideas of Larry Williams on this type of trade, I do not specialize in such trading strategy, and am in no position to provide much guidance on the matter.
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In such a situation, I prefer to stay away, and wait for the highly excitable market to calm down and stabilize into a more well behaved trend. I continue to maintain my Medium Term Outlook that the Gold Price will trade sideways within this trading range, but with two important but slight changes.
Firstly, I see the wide trading range narrowing into the boundaries of the SMA50 Support Level and the SMA200 Resistance Level, and thus, Gold Price will consolidate and stabilize between US$840 and US$900, with occasional, unsustainable breaches of these boundaries, from the triggering of stop losses and indiscretions by inexperienced traders and investors.
Fundamentally, I still believe that the "Flight to Safety" Hypothesis is weakening. The stock markets should be stabilizing in the near future, having undergone a significant crash over the past week. Once the stock markets of the world consolidates and stabilizes, this Hypothesis will be put to a severe test, and my personal opinion is that it will not hold water. If I am right, the general layman investor will be caught once again; this time with a severe downturn in the Gold Price.
I have been hearing too many general layman talking about investing in Gold in the last one week. I think that this is due to the marketing promotion of Gold by private bankers / commodities unit trusts to the public in the last few weeks. And if you believe in the Contrarian Theory, the general public always loses in the longer term, whilst the Smart Money (Who I wonder?) makes money from them. I think Gold is a musical chair game and the small bubble will burst eventually, once the "Flight to Safety" marketing story loses its buzz. This is my biased Global Macro Fundamental View of the situation.
This leads us to the 2nd Change in Opinion, i.e. that Gold will trade with slightly less bullishness than in the past one week. I took some small Day Trading Short Positions in Gold during the week, and was under pressure from its bullish strength for 24 hours. I managed to get out of the trade with a 1% increase in the ROI (Return on Investment) of my Portfolio Capital, but I did have many uncomfortable moments. I shorted again the next day with a shorter timeframe in mind, and was more successful then (both trades were winners), but made less money from an absolute return point of view. Luckily for me, I managed to get out with a profit before the Gold Price skyrocketed up. I then decided that the public bullish sentiment was too strong, and I was playing with fire, and thus, stayed away from Shorting Gold since.
It is regretable that I did not have a Short Position when the Gold Price bungy dived down by US$60 in two hours on Friday, but there was no way that I could have developed the necessary Foresight of such a crash. It is my belief that we can develop Strategic Foresight over the longer term, but in the Short Term, random events, i.e. market noise prevails.
As I said, I look forward to trading the more well behaved trends, like the one on the chart from July 14th to September 15th, rather than the wildly volatile, sideways gyrations we see for the period between September 22nd till today.
With the Price Crash of US$60 in one night (for Asia) or one afternoon (for US), I believe a number of investors are spooked to a certain extent. Thus, the bullish sentiment will weaken with time.
In conclusion, I expect Gold to trade in a calmer, progressively narrower trading range of between US$840 to US$900 per ounce in the near future. In this regard, I would continue to attempt to Short Gold as it nears its Resistance Level of US$900, while I would not take a Short Trade on any breaches of its Support Level of US$830, as I believe such breaches are false breakdowns in support level in the Short Term, due to the strength of the existing bullish sentiment.
Best wishes,
Ooi
© Copyright of Praesciens.blogspot.com, 2008
Fundamentally, I still believe that the "Flight to Safety" Hypothesis is weakening. The stock markets should be stabilizing in the near future, having undergone a significant crash over the past week. Once the stock markets of the world consolidates and stabilizes, this Hypothesis will be put to a severe test, and my personal opinion is that it will not hold water. If I am right, the general layman investor will be caught once again; this time with a severe downturn in the Gold Price.
I have been hearing too many general layman talking about investing in Gold in the last one week. I think that this is due to the marketing promotion of Gold by private bankers / commodities unit trusts to the public in the last few weeks. And if you believe in the Contrarian Theory, the general public always loses in the longer term, whilst the Smart Money (Who I wonder?) makes money from them. I think Gold is a musical chair game and the small bubble will burst eventually, once the "Flight to Safety" marketing story loses its buzz. This is my biased Global Macro Fundamental View of the situation.
This leads us to the 2nd Change in Opinion, i.e. that Gold will trade with slightly less bullishness than in the past one week. I took some small Day Trading Short Positions in Gold during the week, and was under pressure from its bullish strength for 24 hours. I managed to get out of the trade with a 1% increase in the ROI (Return on Investment) of my Portfolio Capital, but I did have many uncomfortable moments. I shorted again the next day with a shorter timeframe in mind, and was more successful then (both trades were winners), but made less money from an absolute return point of view. Luckily for me, I managed to get out with a profit before the Gold Price skyrocketed up. I then decided that the public bullish sentiment was too strong, and I was playing with fire, and thus, stayed away from Shorting Gold since.
It is regretable that I did not have a Short Position when the Gold Price bungy dived down by US$60 in two hours on Friday, but there was no way that I could have developed the necessary Foresight of such a crash. It is my belief that we can develop Strategic Foresight over the longer term, but in the Short Term, random events, i.e. market noise prevails.
As I said, I look forward to trading the more well behaved trends, like the one on the chart from July 14th to September 15th, rather than the wildly volatile, sideways gyrations we see for the period between September 22nd till today.
With the Price Crash of US$60 in one night (for Asia) or one afternoon (for US), I believe a number of investors are spooked to a certain extent. Thus, the bullish sentiment will weaken with time.
In conclusion, I expect Gold to trade in a calmer, progressively narrower trading range of between US$840 to US$900 per ounce in the near future. In this regard, I would continue to attempt to Short Gold as it nears its Resistance Level of US$900, while I would not take a Short Trade on any breaches of its Support Level of US$830, as I believe such breaches are false breakdowns in support level in the Short Term, due to the strength of the existing bullish sentiment.
Best wishes,
Ooi
© Copyright of Praesciens.blogspot.com, 2008
Posts
3 comments:
hi ooi- the e wavers r looking at $600- 650 IT which is a bit contradictory cause they expect further downside to the mkt shortish term - what happened to flight to safety ?
sorry Gold in relation to dow in case u missed my thread
Dear Jothi,
I'm sorry I don't know what IT means as I am new to blogging. :)
As for the Gold Outlook, it depends on what timeframe we are looking at. I agree with the view that Gold should be bearish in the longer term, as I believe that the "Flight to Safety" Marketing Story is a fallacy, and will run out of bullish steam eventually.
In a severe recession where there is significant Asset Deflation, commodities prices will suffer, and I don't believe that Gold is the exception. Gold did not perform well in the Great Depression and neither was it able to maintain this current level, during the 1970s.
I did a study on the 1970s Stagflation Situation a few months back and Oil and Gold prices tanked after it had caused a severe recession. So, I believe that my Asset Deflation Hypothesis will be the Market Truth in the longer term.
There is one situation though where the "Flight to Safety" Scenario must be taken seriously. If we see the US$ under severe attack and devaluing rapidly, then Gold will once again, put on a shine, at least until the attack is over.
No one in the world understands the implications of the US Government printing so much money to put into all kinds of rescue operations. Conventional Theory has it that printing money will bring about Hyper Inflation, and this has been the case with a number of the Least Developed Countries (LDC) like Zimbabwe. This is also what Jim Rogers is talking about when he criticizes the US Government, and continues to propose that commodities (possibly Oil) is the hedge.
I am taking this idea one level deeper. The problem is that the rest of the world is also printing money, i.e. namely the EU. If the whole world prints money, the implication may be different from a case of one country printing money.
Why? Because exchange rate is relative. I must admit that I don't have the answer to this scenario as at today. I am still brainstorming the various implications.
The last phase of this whole US economic crisis will commence when the US Government prints even more money to finance the construction of massive infrastructure projects, in its bid to adopt the Keynesian Theory Solution to the "Great Depression", or in this case, the "Great Recession" problem.
So far, no one is even thinking that far. If and when CNBC starts to discuss this plan, we have to start assessing the actual sequence of events that will culminate in the bottoming of the economic recession. Right now, we are still quite a long way from this solution, and the US Government is still in fire fighting mode.
I am very surprised that both presidential candidates have not come out with some Strategic Economic Masterplan to spend itself out of this "Great Recession", and instead, have been criticized for their lack of concrete proposals to solve the problem. This Keynesian Theory Massive Government Spending is the only way the economy is going to reverse its vicious downward spiral.
As an eminent economist, Bernanke knows this very well. However, as I have mentioned, the Government is still fire fighting, and whilst the numbers in terms of amount required to be spent on the Rescue Plan is staggering, wait till we see the numbers on massive construction spending.
But, I am getting way ahead of myself. One day, I will publish an article on the scenario of how US will grow itself out of the "Great Recession", but not so soon, as the timing is not right yet.
Having said that, my current Outlook is on the Short Term of the next few days to 3 weeks, and in this period, I am not yet convinced that the bullish sentiment will just fizzle out with one large intra-day fall on last Friday.
Thus, I am more inclined to think that the US$840 to US$900 trading range with occasional unsustainable breaches is the most likely scenario in the short term.
One thing to watch out for. As the stock market has been rising rapidly, rightfully or wrongfully, confidence is being restored. Thus, Gold has been performing in the US$830 to US$865 range yesterday and today. This is on the lower half of my expected trading range.
The important question is, "What will happen to the Gold price should the stock market start to weaken tomorrow? My belief is that Gold will start to move upwards into the upper half of the expected trading range then.
And I think that tonight might be the last night that the Dow experience a large upward movement. In fact, I expect some profit taking correction to set in either by the later part of tonight, or by tomorrow.
So, if you are looking for intra-day bullishness in Gold, it will probably start from tomorrow, albeit a calmer, less volatile short term uptrend of a few days, into the upper half of the expected trading range band. In my opinion, this is the most likely scenario of the Inter-Market situation between Gold and Dow.
Is the reply to your comments you were looking for? I am not very clear on your 2nd comment. So sorry.
Best wishes,
Ooi
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