Gold? New high? Why you are surprised? 11/23/09

Gold?
New high? Why you are surprised?
People said this may be a manipulative move. Someone picks a low-volume time in the market to move the price to force people to buy in a panic. I am panic now. I am holding longs and I want to add more.

Usually gold and dollar have inverted correlation, simply because gold, as well as other commodities, is priced in dollars. But history also tells us if in financial and economic crisis, fundamental favors gold. It will move on all alone. This is the beauty of gold as compare to other commodities. Since this depression, investing structure has been changed a lot. People are now more in favor of physical investments. What will you favor? Gold the physical yellow metal or some derivatives from aig? In recent weeks, we see gold keeps on making fresh new highs even when dollars had meaningful bounce such as Friday.

Strong $? What a joke. You think Ben can defense $ by just talk some talk? It is just to provide some bargain power for Obama’s Asian visit. As long as interest rate stays low, there is no strong dollar nowhere. The fact is dx had been rejected couple times at 20ma. How strong it is?

All the reasons for long I pointed out are still there.
I want to add the China play. Well, nowadays I have not seen any research report not have China in it. This is how important the country is. All hard numbers indicating China has already got out of recession. I expect China to be the largest gold consumer in 2010.
Decrease of the use of hedge is another driver. Since 2001, gold miners have decreased hedging for about 90 million ounce. In q3, gold hedge dropped to 11.5 m. In theory, the reduction of hedge helps the gold spot price.

Now the chart reading:
Weekly and monthly charts are very strong. On daily chart, we still have HH HL. The possible H&S is gone. BB is expanding. Target remains at 1200.
However I expect some small bounce of dx recently, thus gold may range another 2 weeks or so. Overall since 1100, a lot of speculators jump onto the boat. They may take profit at any time. Also for Xgiving long weekend, a lot of funds will reduce their positions. I will hedge my longs.
Today's range could be 1154-1168.I will add long below 1155 with stop at 1146 and short high with stop at 1169.

Scary Prediction

Usually I don’t give a shit about predictions. As a typical DTer, I never pay attention to people’s long term prediction until today, until my boy Frank showed me a chart.

This is a chart in Chinese and was posted on a popular Chinese website. Frank first saw the chart in early July but he's pretty sure the chart was first posted in late March or early April since one of his co-workers saw the chart at that time and laughed loud at it.

I don’t have any comments on the chart. It is astonishingly accurate. I know tons of economists, traders, money managers and all kinds of pros. So far I believe this guy beats everybody everything. Maybe he is the God himself.

Another shocking thing. Frank showed me a post this id wrote on the same website dated 7/15/09. Among couple thousands of Chinese characters I found the 2nd to the last sentence (thank god) contains something I can recognize: 3, dow, 10000. My boy said the sentence reads "in 3 months Dow will go back to 10K". When Dow come back to 10k? 10/14/09!

I feel so scared.

Well forgot to mention, he made 2 conclusions in his 7/15 post. Conclusion 1 is Dow 10K in 3 months. Conclusion 2 is within at least 2 years, don’t sell at any pull back, buy dip instead.

Quick update on gold

Since my weekly target of 1150 had been reached, I think it is necessary to check the market again.
14 trading days in Nov. 11 up with 8 historical highs. This is the transcript of Gold. (Per stockcharts, today is the 3rd black day. Actually today COMEX recorded slight gain for gold.)
Today, mixed econ data pushed $, and beat gold down to 1129. but gold still managed to close above 1140.
Considering Friday, and possible uncertainty over the weekend, I will trade the range of 1130-1150, and I will hold a small long position over the weekend by sell couple puts.
Again I still think we will see 1200 this year, and very likely early Dec.

Gold Reading

Gold is enjoying one of its best November, up 6.3% for 1st half of month; adds trend likely to continue. Below are some reasons that I can think of:

1. Seasonality
Per Barclays, "Approximately mid-Nov to early Dec is a strong seasonal time for gold with an impressive track record over the past three decades."

2. Liquidity and inflation
Central banks around the world won't easily be able to exit the vast amount of liquidity they've pumped into their respective economies w/o any price. Here is the catch: "Inflation remains a real concern." That should mean continued support for gold, often used as an inflation and dollar hedge and more broadly seen as an alternative currency. As investors flee the $, they are moving into higher yielding currencies, hard assets like gold and other commodities as well as equities.

3. Risk preference
Bernanke's assessment of the economy of today reinforced a view that the Fed will likely keep US interest rates at ultra-low levels for an extended period. Despite weak US consumer confidence data, risky assets such as equities and commodities have rallied. Liquidity seems to have drowned the market's fears. The lower dollar and rising risk appetite also boosted other precious metals. Although gold put in strong gains, silver, platinum and palladium, which are more heavily used in industry than gold, advanced more in % on the weaker greenback combined with economic and automotive news.

4. India / China effect.
India bot 200 tons of gold at $1045. Now the world is eyeballing at China. Currently China has only about 1050 tons of gold, or $37b, or <2% of the reserve. The question is should they buy it at this high level? This is another test that the Chinese gov needs to face now.

5. USD: I am expecting a new low THIS WEEK. I think 74.8 cannot hold.

6. Chart reading
macd strong with expanding histogram, break upper bol, sto overbought but no big deal
This week's target 1150 with support 1128. I will buy dip at 1113.

Reading of DOW

Using the same methodology for the previous 9675 LIS (showed as the white line), now I calculated the upper limit to be 11245, with an efficient range of 10863-11115.

***This is just a big picture view.