Guest Post: Has Gold Unwound its Overbought Status?
Submitted by Chris Capre of Second Skies LLC
Has Gold Unwound its Overbought Status?
One of the biggest questions being written about which is on traders and analysts minds is whether Gold has moved into bubble territory and is about to start a major reversal, or is going to keep on truckin’ Blind Boy Fuller style. While my fundamental hat suggests it’s likely to continue its trend (as a hedge against bad govt’s), being a quantitative price action and ichimoku trader, I have to see what the technical picture is communicating.
For looking at whether a market is in an extreme phase and is set to reverse, we often look towards our weekly 20EMA spread. This model plots the distance from the weekly closing price to the 20EMA as a gauge of market extremes or whether the trend is likely to continue. If a market is at an extreme level, it usually has a very large spread from the 20EMA. Any abnormal spread from the 20EMA is likely to return to the 20EMA.
Looking at the chart below, you are seeing the weekly chart on Gold over the last 6 years. In this chart, you can see price’s movement and its relationship to the 20EMA, along with the lower indicator/model representing the spread between the week’s closing price and the 20EMA.
We have highlighted the key peaks which generally occurred around a 1258 reading, or price having $125.8 price spread from the weekly closing price to the 20EMA. This generally led to a pullback minimally to the 20EMA within an average of 4 weeks and a maximum of 10. We would like to note that historically, since April of 2005, Gold has spent only 43 weeks below the 20EMA (closing basis) out of 541 for a total of 8% of the time, statistically displaying its tendency to trend upward. It also means should Gold break below the 20EMA, the chances of price staying below it for extended periods of time are unlikely.
What we do have to note is the most recent parabolic run away from the 20EMA created an abnormal spike never before seen in history with a reading of 2718 or price closing $271.8 away from the 20EMA. So the next logical question becomes what do we make of this and is it the end of this massive uptrend?
Our view is this is unlikely, considering the historical relationship to the 20EMA as noted before (8% of time below). In fact, we may consider a pullback to the 20EMA to be a healthy thing as it will put Gold through a re-distribution phase and allow the order flows behind it to start another run higher.
But, the extreme nature of this suggests price is likely to pullback to the 20ema within the next 2mos or by year end. Across most instruments, price rarely has this kind of extreme or unstable relationship to the 20EMA and usually means the orders behind such movements have to normalize a bit before starting another run. Keep in mind, this does not have to happen with a violent sell-off and could be the result of price hanging around the $1700-$1900 range while the 20EMA catches up to current price levels.
In fact, to add any new positions, we’d rather wait to let the spread normalize and move back into the prior range which suggested a very healthy trend.
We also do have to add to the bullish prospects how price had one of its biggest weekly drops from an open of $1860.92, to an all-time high of $1911.89, then shedding $209 to the weekly $1702 low to do what??? Bounce strongly and end the week at $1827. This is highly suggestive of how the buyers were ready to stand up to one of the most violent and largest % based weekly sell-offs and send the metal within roughly $40 or 2% of where it opened the week.
Thus, although the short-term price structure may suggest consolidation or mild pullback to the 20EMA, our medium and long term technical view is still strongly bullish.
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"If I were a rich man,
Ya ha deedle deedle, bubba bubba deedle deedle dum.
All day long I'd biddy biddy bum."
Ancient Aliens on History channel said the Giza Pyramids were created by ETs as a way to convert other elements into gold! Someone tell the Fed so we can take over Egypt and flood the market!
yiddy alchemist have always wanted to convert lead to gold. but now they figured out a way to deal with this problem. its called gold plated tungsten....
fractional buillion paper ponzi is way easier...
Why go through the trouble when you can just sell gold you dont have?
http://www.youtube.com/watch?v=BfCn8NlLHko
yes but a lot of these countries that for years have trusted amerika , and its banks may start demanding their product be produced and delivered to them, ala , venezuala....etc... no paper promises will suffice for these requests? what then?
what then?
http://www.youtube.com/watch?v=sI2uWOk25gI&feature=related
And a lot of us become feudal kings :-)
when all of the gold is taken out of new york, what is left?
oh i almost forgot........
tyler, ,,,,,tyler .....it is my understanding that the basement vaults at jpm were flooded and there are many pallets of gold bullion missing. presumably it has been stated by the custodians at jpm that these missing pallets somehow floated out of the building and are now somewhere in the hudson........
over and out......
Brilliant! I hadn't thought about that. 9/11 was too much hassle, use a hurricane as cover, mandatory evacuate the masses and load up!
Unless proven otherwise, I assume the U. S. has no gold in storage. I trust our government as far as I can throw a 400 troy ounce gold brick!
Well, in Europe's point of view:
Europe is going to need to print 25% more euro's in the next 2 years to keep the shit floating.
Imagine you're a billionaire... wouldn't you throw in a few billion in Gold?
By the looks of it, they are buying and so do a lot of people who have money to be rescued.
LOL.
Did you mean PIIGS floating?
:)
Sort of relavent ... involves floating ... panic ...
http://www.youtube.com/watch?v=Th_aBzrV37M
Regards,
Cooter
does that mean the eurozone will export some inflationary pressures to the gulag amerika's shores?
This is a good article. I agree, that we are short term over bought. Have been posting that we need to turn lower (rest) to give us our next solid leg higher. I did buy more physical on the dump, and now will wait to see if we pull back again to 1,700 or 1,650 to add again. But for us here, so what. This is our protection and short term dumps just gives those of us who want to add a better entry point.
And gold can remain range bound for a few weeks to work off the over bought and let the 200dma move closer to the current price. No matter what, just keep thinking the 3 stooges in control with no clue what they are doing. So will bet none of us are selling our physical.
Carry on.
i am wondering if bullion prices ever will decouple from paper gold prices...
It will happen, the same day that the zh servers go tits up! ( Gold price is actually decoupled now, but just to a small degree) The Chavez delivery has made things quite interesting in this arena...
if that ever happens, its game set match, no doubt about it..........
speaking of servers, i would like to see zh servers. i bet its hot in there......ha ha ha
Owning gold is like getting financial insurance. Gold is there to protect your wealth if/when the SHTF. It's a good idea to wait for a pullback in the price as long as you have a secure stack of gold already.
If you don't have any gold, and you're waiting for a lower price, I think you've failed to understand the point of owning the metal in the first place.
By all means, make a dolla once you have a healthy stack, but if you don't have any gold, what the hell are you doing waiting to get some?
This isn't about making money, it's about survival. Once you have a healthy stack, THEN worry about the price and whether it's going to go up or down short term.
t1000...I concur,++++ but be damn careful how you buy! DO NOT pay the huge spread on on crap "numisatic" coin. Find and compare your local coin dealers...a much safer bet...:)
Yeah, get gold eagles, gold buffalos or Canadian maples.
Good article on the gold bubble talk: http://truthingold.blogspot.com/2011/08/idea-that-gold-is-in-bubble-is-i...
Agreed T1000. When SHTF MS-69 or MS-70 or MS whatever won't mean shit to a tree!
Tuco Benedicto Pacifico Juan Maria Ramirez
What's your definition of a "healthy stack"? Owning physical is a must, but you'll still be screwed when the SHTF if you don't have enough (i.e. holding something ending with at least six zeros worth).
"This is a good article. I agree, that we are short term over bought."
What you think or agree to doesn't matter. What the Asians, Indians and Mid Easterners do with their excess fiat is driving gold.
America is slip sliding away... Best buy some gold and protect yourself... Or, you can depend on your government to do it... :)
Sudden, which country in Europe do you reside in?
Belgium
just wait a few days...
the country that invented the french fries.
and no, it's not france.
You mean freedom fries. Fixed it for you.
xau/usd trading at 1836 right now
http://www.semmo.net/streaming-real-time-quotes-gold-spot-price-silver-spot-price.html
bla bla bla
the gold price in fiat is political
look back at the last 4 decades from an Austrian School point of view and run for your lives
the banksters pulled a John Galt on you
Galt's Gulch is offshore somewhere
Switzerland's too cold.
The elite favor Dubai now.
http://www.rense.com/general84/dee.htm
Dubai sucks and they only want the financially elite. South of France only a few hours out of Switzerland...
South of France sounds good to me. Rennes Le Chateau in particular. Portal to another dimension and all the Visigoth gold you can't carry...
http://www.telegraph.co.uk/news/worldnews/europe/france/8671426/Indiana-...
Hmm, Solomon's gold and the Holy Grail in the South of France. How could Monty Python been so wrong?
Stupid, useless TA analyses, ignoring the horrendous macro situation. Of course the paper dollar price could
fall for various reasons, margin hikes, selloffs, but so what, if you own physical? Its the ounces you
own, not Crimex paper, that counts.
But in the meanwhile margin hikes are strengthing the hands of the rich and weaking the hands of those that want to but can't afford too buy! Which leaves physical as the only alternative for the second group.
dead wrong Edog!
Buy the dips when margin hikes are announced.
Physical is the only sensible approach now. Unless you think unk sam can stick save this FUBAR situation...
Odd:
http://www.sgxniftydowfutureslive.com/index_files/DOWFUTURES.htm
has Gold at 1809
Kitco has it at 1834 (assuming 1834 is correct)
$1831.10
http://finviz.com/forex.ashx
click on commodity for spread out chart...
your face, *****ez!
For my 2 cents worth; I'm looking for a high of around 1850 - 1870 and a retest of the lows around 1710 - 1700. Over the next few sessions to maybe 2 weeks out a bullish wedge formation developing.
Only thing that would turn me slightly bearish is a break of 1691. This is a low probability, but with the political elite controlling the CME Crimex division [and subsequent margin hikes and other bullshit]you can't rule it out.
Then sell your gold and move along if your scared. Or from the timing of your article I would guess you are sweating a short or hoping to get some on the cheap.
What the hell is the "EMA"? Never heard that term before. I get the moving avg part, but what's "E" ????
BTW, Dennis Gartman says you have that chart upside down. Buy high, sell low.
E is exponential; as is Exponential Moving Average [EMA]
All of this technical analysis leaves me cold for the simple reason that it does not take into account the fact that the world's political, financial and economic systems are out of balance and in disarray. Those that are fixated on the price of gold (too low or too high) simply miss the danger of holding too much faith in a paper based system that is in danger of imploding.
At bthe end of the day, one has to be honest with themselves and ask themselves only one question.....If you were given $1,000,000 today where would you invest it? Government bonds of Europe or USA? Or gold and silver?
Gold now down to $1803: http://www.oilbull.com/gold-chart/
Chart looks odd though. Straight down on a minute-by-minute basis. Almost too controlled. What's up with that?
I have a print of 1826/ ??? Whats up?? Should I short. Nah
FOREX also has a print of $1826 . . .
opps
Yeah, it's the same as here:
http://www.sgxniftydowfutureslive.com/index_files/DOWFUTURES.htm
Something's glitchy.
I bought in 2008 and in 2009 and 2010. It still feels nice in my hands, wy should I sell? Give`s kind of security....
You're either a troll or can't read a simple chart...
http://finviz.com/forex.ashx
$1831.10
Something is not right http://www.24hgold.com/english/gold_price_in_dollars.aspx Seems to be two different prices atm. Which is right?
And PM futures blast off.
There is a big difference between traders and holders.
The economics: creation of M2 and credit greatly exceeds the production of goods and services- inflation- gold's value rises unless new supplies come online. Until this changes, the dollar, euro, etc value of gold is unimportant. You cannot value a commodity in currency that has no value.
Traders: new margin hikes are anticipated. Look at the current pricing. Gold is down and silver is up. I suspect more margin increases are coming until it places too much gold in strong hands. Short term- expect lots of volatility.
I am so tired of hearing the whole buy sell routine. I could care less. Here is a value component few are considering: what is the value of anonymity? What is the value of sleeping comfortable in the knowledge your security is not based on the actions of a bank or government?
When currency develops value, I'll change, until then, HAHAHAHHAHAHAHAHAHAHAHA!
The BIG problem with analyzing gold using historical patterns, no matter how sophisticated, is that several hundred million Chinese are now buyers who weren't there in any of the previous data. Add in the soon-to-be 'fact' that sovereign currencies are doing the slow collapse in preparation for the violent implosion, and any analysis of where gold is going based on historical data is merely interesting - not predictive. We are on the verge of, if not already in a completely different world, and human beings being rational creatures do not care what past data says, all they know is they if they intend to be able to eat in the next few years they better own some gold and silver. And as we know these are very thin markets, so those couple of hundred million Chinese would-be eaters, along with an increasing number of Americans, Europeans, Latinos and Indians who would also prefer not to starve, add up to gold = $10,000 quite easily.
Re the Martin Armstrong comment - so he's predicting $1350 gold, and from memory stock market bull rally into 2015, based on the pi-cycle thing he came up with.
I only recently came across him, spent a fair bit of time reading up about him and his Russia collapse / Gold collapse calls in the 80s, his incarceration etc. What I want to know is how accurate is he really? Spamming predictions and getting some right doesn't count. I'm keeping an eye on what he says, anyone with any feedback, keen to hear it.
Chart doesn't reflect value of gold, just price in fiat and time. In a vaccuum the chart may have some relavence but not on the eve of destruction of the finacial system.
"This time is different". Sound familiar? Well it's not, and it doesn't matter what you are talking about.
Betting gold short, but not planning on it going to 1300 directly.
Took this Euro short. Weirdest Sunday open, the Euro opened almost exactly where it closed on Friday. Never seen that before, almost always some type of gap. It is exactly at a nifty trendline, check the chart, esp, the lower chart closely.
In a way I am playing "all the same bet", in my prior posts, I have detailed
Gold Short,
as well as US indices
"Channel of Doom from 2003 now currently fully in play", and
"Egg of Doom".
Please go to main page and then scroll down for those. And below is the NYSI Summation index, indicating a long equities, possibly, but crossover has not happened, it can flounder around on the bottom for quite some time.
http://oahutrading.blogspot.com/2011/08/euro-short-based-on-nice-trendli...
you all worry too much. if BTFD's makes you worry, stick to LULU & BIDU. Cramer's got yer back... in the meanwhile STFU. I know precisely why I buy gold & silver. You should too. I know "why" I make every investment... the "why" can only change when new information is presented. When BenShalome starts deleting instead of adding zero's, ZIRP changes, or the Euro get their shcizza together, I will come back to ZH for more of the best info on the interwebs. Till then, glasses up for Blythe and have a nice afternoon.
Heard around and about....
I look forward to the day the EU Parliament building in Brussels is converted to a hotel and there is a plaque on the outside entrance that says: "Here was once the headquarters of a vision of European Unity that went far beyond it's mandate of debt control, and with it died socialism."
The problem with using charts, beyond that it usually is sophistry, is that we are living in fucked up markets. To say based on certain levels we are overbought or oversold regarding gold is a bit bizarre given margin hikes touched it off.
These outside influences adds another factor to why such sophistry is flawed at best. Where will this look at the charts mean if more margin hikes occur? Not much.
Of course long term wise, these hikes won't change the outcome, they just buy a little more time for the idiots to conduct their dogmatic policies of ruination before everything falls apart.
I don't think there is a chart for that.
As I've said before, gold is in a bubble. Why? Because EVERYTHING is in a bubble. Just while the printers are printing, more will flow into gold/silver and out of the everyday shit because everyone knows it's a better store of value, and the differential between the bubbles sizes is HUGE.
Take quadrillions of fiat/gold market, and you can see that while gold is in a bubble, it by it's very nature has a ratio...err percentage far, far, far smaller than any of the other existing bubbles.
Which means until the bubble economy finally pops with no more monetarism, it can inflate faster than the rest of the bubbles in a meaningful way...even while being overvalued. Because there is nothing else in monetary world better than holding precious metals, even if in the end they are mostly useless. They're rare, they're a traditional form of currency, and when everyone else is going crazy, they store wealth better. There's a lot of fiat around to push up the price. That fiat isn't going away until it does. When it does, gold won't be the place to 'safely' hold wealth. But until then, it sure is.
But then again, when that happens, what's a little bit of wealth on paper regarding the value of the precious metals worth for a functioning economy where you can actually make gains comparable to that of holding precious metals. Because in the end, holding precious metals as the world way of making money, does nothing to provide for needs. You need a functioning economy to do that.
Only collapses, manipulation, and actual change will gold go down. The first two, still screws everybody, the third one should be viewed as just fine as you open up legitimate replacements for the flow of funds to go into, producing real returns, based on tangible shit.
You could also say if you pass equilibrium between fiat, but what's that? 10 million an ounce? Hell I don't know. It's a shit ton higher than what it is now.
But if gold is higher than what it should be in a 'sane world', then yes it itself is in a bubble. So we are. But funny enough, it's probably the SMALLEST by FAR of any of the bubbles out there. So in a relative term, no it's not in a bubble. From a real world perspective, yes it is. Compared to others No. Compared to reality. Yes.
But since the markets haven't reflected reality in a long, long time, I wouldn't worry much about precious metals. Because the printing was an imbalance, it doesn't change the reality of the precious metal, it just changes the worth within that system and what it's redeemed for units of account within said broken system.
So as long as we use a broken system, sky's the limit. Except again under the most extremes of crashes, where it is even possible it goes up based off people piling in from selling their other shit, and margin hikes.
The banksters have already decided (as it's always been their method), they are going to print to pay their bad frauds off. The only question is, who will hold them to account? The gold market is doing a much better job than gov't right now, as gov't (and most of the electorate) still wants to cut, print, or tax...to pay off the banksters frauds.
Meanwhile Gold is Gold. Silver is Silver.
Now if we could only get the people that realize this in the precious metals market to link that with their politics, we might get somewhere. Otherwise we'll go through hell and really only protect ourselves.
The average person not only has to preserve their own wealth, they also have to try to change the system. Doing one or the other, or neither just invites doom. Although those with gold will be able to claim they are last men standing, king of nothing hill. Better to be there than at the bottom, but there is still a better way. It's possible to do both. In my opinion I see ZH as trying both. To help people preserve their wealth, while shining a light on the idiocy of today's markets, bunk dogmatic ideology, etc.
Everyone must get on board with trying to do both. For your personal stake, and for the macro world at large (that you also live in personally). So buy gold and silver to protect yourself, while also trying to change the world so you don't have to, and can eventually turn some of that herd 'wealth' into real productive wealth. Because that is what we ultimately need. Not gold at 1 trillion an ounce, but a functioning economy that every nation in the world can participate in, for their own benefit, because to pool our resources is always better, when it's done under the proper constraints contingent upon what each sovereign nation legitimately deems necessary for it's own to survive.
Glass-Steagall
Author of the article here;
I am not going to disagree with you we are in some f'd up times. No doubt about that. These are certainly unique times and there are various/numerous fundamental economic factors which will have a deep impact on price.
But I am going to disagree with you charts/TA is sophisty. I have a fund with an 8yr audited track record (http://kronosfx.co.uk/). We only trade off our charts/quantitative price action models. The algos we use take no economic or fundamental data into the equation. Just price and price behavior. If we were sophists and had some bogus algo, we would not have been as successful as we are. But we have been and that is why investors have money with us.
I am not trying to make this a TA vs. Fundamentals argument. I certainly agree there are macro-economic factors which have and will have a great deal of influence on price. If I wanted to talk about the economic or fundamental factors which are affecting the price of gold, shoot, I could spend weeks writing about all of that and there are plenty of those articles here discussing those angles.
This post was simply done to reflect another angle on the market and provide a purely technical perspective. All the price history we see on the chart here of Gold vs. USD is reflective of the total summation of all price fluctuations over the last 6yrs (regardless of their cause) and that data is not only useful, but tradable.
Regardless, in many ways, I agree with many of your sentiments and thank you for sharing your sentiments.
Wow, it feels different here at ZH.................an article on gold and not a troll to be seen! WTF are they? Is there a troll precious metals Disinformation Convention on or something? Or have they all left for South America with their suitcases stuffed with precious metals? Not even the psuedo trolls like Leo and Robo or Jonny Bravo (without the "H"). Maybe they'll feel brave enough to come back out if gold drops below $1700.......which if happens won't be for long.
There are some trolls here... They are attempting to be a little more sophisticated with their comments... but it isn't working.
How much do you think anti gold trolls are paid?
Wot?! Gold not going straight up, forever? HERESY!!
HOW can Tyler provide a platform for these… these… UnbeLievers!?
I mean, it's not as if some leveraged hedge funds are currently holding more gold than most of the world's central banks. Wait, no . . .
PUT GLD. Buy physical. Fuck paper.
This is one scary ass chart whether you are a trader or an investor. I love PMs long-term, but you've got to GTFOOT if you are a trader and didn't buy at $1000 or lower. If we are lucky, the correction will be an Irene.
Quick, dip your head in the tub... your hair is on fire! lol
Just outta troll school?
Hey, How about those Illuminati Hideouts! Just read a post about Bug out Time Shares. They are hiding as J6P and Hillbillies. Jed Clampet with a shot gun across his knee siting on the back porch donchaknow. GPS anit no go for stasing that Au
Hey, How about those Illuminati Hideouts! Just read a post about Bug out Time Shares. They are hiding as J6P and Hillbillies. Jed Clampet with a shot gun across his knee siting on the back porch donchaknow. GPS anit no go for stasing that Au
Yeah, yeah....
Here's the real question of the day- ASEs or Franklin halves? Got about ten more minutes to decide, both are below spot for the minute.