Despite a drop of roughly $400 for the stuff itself, from a little over $1900 to almost $1500 (the charts do not necessarily show this, as they are weekly), the direction of gold from here remains unclear. In the short-term chart there is an A-B-C pattern that could stop right here on the lower channel line. If it does we go up, if it does not we will go a lot lower, it is that simple. The trend line is just under $150.
This chart is precisely a year old. It shows the A-triangle B – C pattern indicating that this index was coming to the end of its ride. The high point was around 224 at the time. The index, of course, contains 13 or 16 of the major gold producers, ABX, G, K, NEM Agnico etc.etc. and represents the body of senior gold miners well. Here is where we are today;
The start of this chart corresponds with the end of the one above. It covers an entire year and has three tops, the first approximately at the level where THE top was expected a year ago. The next two tops are lower!, so we end up with lower highs and lower lows which excludes the possibility of an expanding triangle (megaphone) or any other known pattern. The first down leg leaves something to be desired but nevertheless is most likely a 5-wave affaire. The next two down legs are both definitely 5 waves. The counter legs are all 3-waves and most clearly so. Ergo this is most likely a series of three1-2 that are invariable followed by a virtual collapse,which might look as follows;
In the big picture it is not clear if we are looking at a 5th wave or a B-wave into the latest top. Fortunately as far as the immediate outcome is concerned it does not matter. A realistic target is in the order of about 60 or lower. Note that if you look at the thin red line in this chart, that the XAU just two or three weeks ago was trading at levels where it had first been 6 years ago! The spread between the stuff and the miners has widened with each passing year.
The blue is the stuff and the yellow is the XAU. You missed out on a 200% relative gain by owning the miners. If the stuff comes down as it must as there is not a single investor left that is not long, one can only wonder at what might happen to the miners.
The Central Fund is a closed end quasi mutual offshore fund incorporated under Dutch law. It has been around for a long time and is worth close to $7 bln. It is all about gold. Which is shown below by way of GLD;
The charts are over a comparable period but since the GLD has not been around that long it starts in ‘05. From that time gold is up about 4 to 5 times and so is the Central Fund. The GLD is worth about 76 bln, 10X larger. The correlation is obvious.
Both charts have triangles in them, presumable 4th waves as that is the only possibility, the question is just of what degree. Given the size, one or one and one half years in duration, I suspect that they are of the highest degree, which would imply that sometime in the not too distant future the stock/unit price should drop back to that level!! This should happen once the 5th wave or “thrust” is complete, i.e. after again 5 waves (or 9, 13 etc). On the Central Fund 5 waves can easily be counted, and wave 5 is now precisely equal to waves 1 and 3 combined: on the GLD 9 (after the triangle) so both could be topping now.
One , according to Greenspan, cannot tell if there is a bubble and when it will end. That is the wrong question. All bubbles, once they burst invariable drop to below their respective starting points ergo by selling at any time during their existence you will be better off than holding forever. Furthermore there actually is a very easy way to tell if you are in bubble territory, when the angle of ascend reaches the vertical you are there. From the looks of GLD that is NOW. For reference purposes I have added the Nasdaq “tech” bubble below, notice that the proportions are about the same!;
PS. Today the GLD ETF surpassed the SPY, which un till now has always been the largest and most active ETF as it represents the S&P 500. If bubbles are caused by the concentration of investable funds in a , usually, narrow asset class, this is it.
The “conundrum” continues. Above we have NEM, Newmont, one of the lager or at least mid tier gold producer. Below that , the stuff, by way of the GLD which represents 1/10th of the gold per ounce price, and below that silver by way of SLV, all in US$ terms.
These are 5 year charts. Newmont has gone nowhere, the stuff has roughly doubled over the last 3 years and tripled over 5. Silver out-performed the other two by a wide margin, more than quadrupling in just 3 years. But there is no harmony between the 3. Clearly there is a complete and total disconnect between the miners and the stuff, and then there is a disconnect between gold and silver. Silver looks like it has already peaked and is completing a corrective retracement. Gold has just broken out of its channel.
I suspect that the cause of these non-confirmations lies in the massive growth of the various ETF’s. The simplicity and liquidity of these investment products diverts capital in a disproportionate way into what happens to be in vogue at a certain point in time, without the limitations with regard to individual participants and volumes such as apply to commodity futures. Raw capitalism at its best, someone will be in tears before it is over.