Bill Cara: Goldminer shares are close to support, Wed., Dec. 14, 2005, 12:19 PM

« Stockman points to TYX going bullish, Wed., Dec. 14, 2005, 11:46 AM | Main | A chart for day traders, Wed., Dec. 14, 2005, 1:00 PM »

December 14, 2005

Goldminer shares are close to support, Wed., Dec. 14, 2005, 12:19 PM

In a bull market, which means a rising long-term trend, there are continuous cycles that will go against trend. No security price can stay rising forever; it's two steps up and one back. In the past couple days, the strong uptrend in gold has settled back to test the psychological support of the $500 level. I think it will hold. Here is the chart.

In this chart, I have the TSX goldminer ETF (XGD) in black, and the comparative move in the bullion etf (GLD). At the bottom, also in blue is the RSI of the XGD.

Relative Strength Index (RSI) gives you a good single tool in a non-trending market. But in a strong trend " up or down " RSI must be used in combo with other tools and common sense.

Over the past few weeks, I stated strong opinions that goldminer shares would turn around after small, short pull-backs. I was not going to wait for a RSI value to fall back to 30 when I thought it would reverse at about 50, which it did.

I think the present RSI in the goldminer shares (and the bullion securities IAU and GLD) will reverse before going much lower. As support for this opinion, I am looking at rising short-term rates, falling USD, and the increased international trade deficit. And when PPI and CPI data comes out I will be interested to see if the recording period captured the recent uptrend in energy and commodity costs and interest rates. If it does, then U.S. CPI/PPI will be rising Y/Y, which would be further confirmation that I am taking the best position I can regarding gold.

To me, gold is quickly becoming the currency of choice by people who are concerned that governments are printing too much paper money. Unless wealth creation can keep up to the pace of new paper currency creation, then gold should move higher. It is.

That's not to say it always will; just that it is.

And people who are printing their own money, and naturally proud of the job they are doing, will always speak out in support of that money (i.e., in this case, the USD). So it's not for you and me to put the knock on them; it's up to us to trade the way it makes sense to us.

At the end of the day, we have to be proud of our own portfolio performance, or we have to admit that the others were right and we were wrong.

Posted by Posted by Bill Cara on December 14, 2005 12:19:51 PM | Category: Bullion , Gold , Goldminer Producers

Discourse

The 50% retracement from the November low to the recent high is about $500. This should provide support as well. Fibonacci has worked extremely well in gold, so always check this even if you don't trade off it. I do :-)

Posted by: g034 at December 14, 2005 12:42 PM [link]

The talking heads on CNBC keep talking about dollar weakness, but I see a broader picture emerging in the currency markets. We may be in the early stages of an unwinding of global carry trades (and a consequent sell off in high interest rate currencies), and a shift into countries running current account surpluses, like Switzeland and Japan. The key metric now may be trade numbers not interest rate differentials. Of course, in anything but the shortest timeframe, this is positive for dollar-denominated gold.

Posted by: josh at December 14, 2005 12:56 PM [link]

Gold inching towards support you say? We'll that is exactly what I wanted to see. If you're long gold or support the theory behind how bad the shape of the over pumped US market is -> You'd be buying the dips so the true long camp should be thrilled. I don't see the opportunity to make a killing a gold via short term trading unless capital at hand is freely available. Besides if it did go towards 525-530 I would feel like I felt in the times of Katrina with Oil. I would feel like the whole validity behind the commodity is gone and its being day traded and momentum traded kinda like a RIMM stock.

I want two steps up and 1 step back and I find it makes for far superior profit in the long run with lower capital gains issues and minimizes the psychology ascpet of pride and regret. Missing the big move up and holding too long on the big move down.

This is what I wanted to hear Bill and thank you. Your technical charting skills are up there and usually you've had the right call T-2 or T+2 but again who really is day trading gold. Not many.

I thought you lost your marbles with buying XGD's at 52.90 and that very same day I felt as if you got a great deal only to see it hit 47-48 and at that point I still didn't pull the trigger only to expect another pull back and then it was too late and too violently heading upwards so I headed into a telco instead.

I figure this core/non-core flip flop, the massive defecit rising, falling dollar, rising loonie, raising of rates and a overly patriotic US MSNBC type trading crowd is all leading into a nice time bomb -> Didn't mention the housing mess which is like a hang nail, neither here nor there.

BUY GOLD - I'm not mister timing but I do believe in Bill's predictive ability and correct calls of the past thus if its at or near support buy a position. Wouldn't mind a massive sell off myself, would like to do a little scoopin!

Posted by: dinov at December 14, 2005 11:34 PM [link]