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For now equity markets across the globe have stabilised and have actually started to show some signs of finding a bottom. With that in mind the pressure has been applied to skyrocketing commodities prices with many of them quickly coming off the boil, in particular Soybeans, Wheat and Gold.
Gold has been in the news a lot lately with stories about the current boom and the notion that investing in gold is now a profitable hobby for many. A contrarian would start to see this wide spread talk about the ‘boom’ in gold as a sign the end could be near. I am always most interested in what the chart suggests.
A big part of the message that David Bowden is trying to get across in the Smarter Starter Pack is the importance of repeating ranges. Chart 1 is a quarterly bar chart of the gold futures contract traded on COMEX (GC-SpotV). As you can see the previous major bull range on gold was from the US$100 low to the US$873 high, a range of $773.
Chart 1 – Quarterly Gold Futures
click chart for more detail
Taking that range and adding it to the 2001 low of US$255 we come up with a price of US$1028 as a repeat of that range. The current top on gold is $1033.9, to me that is close enough to an exact repeat and a sign that the run could be over.
We need to consider that gold is quoted in US dollars and therefore movement in the dollar also impacts the pricing. Chart 2 is the quarterly bar chart of the U.S. Dollar (DX-SpotV). This contract is priced against a basket of international currencies.
You can see from the all-time high of 129.05 to the following bear market low of 78.43 we get a bear cycle range of 50.62. Taking this range down from the 121.29 high in 2001 (that’s more than a coincidence with the gold low wouldn’t you think) we get a 100% pressure point of 70.67.
Chart 2 – Quarterly U.S. Dollar
click chart for more detail
The price of the U.S. dollar contract is getting precariously close to having repeated the previous bear range, just as gold has run out the repeat of its previous major bull range. You must agree, it is all looking rather ominous for both.
Just to ensure credit’s given where credit’s due, this analysis has in fact come from one of our extremely professional Trading Tutors.
For those Safety in the Market clients with a desire to take it even further, apply the ABC Pressure Point Tool over the range from the 2001 high to the 2004 low and then project that range from the late 2005 high and you will find an interesting set-up with regards to the 50% Danger Zone!
None of this is a guarantee, but it certainly warrants a second look. We could be about to see some big changes in the trend for these correlated markets, representing potentially great trading opportunities. One always needs to take each and every trade within the framework of their trading rules to ensure proper capital management with regards to reward and risk.
If things are as ‘juicy’ as they seem I hope that you are positioned to make the most of this potential ‘golden’ opportunity we have unfolding before us.
Until next time…
Noel Campbell
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