Bill Cara: Point of cycle reversal for $USD, $GOLD, Thurs., 6/15/2006 7:28 AM

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June 15, 2006

Point of cycle reversal for $USD, $GOLD, Thurs., 6/15/2006 7:28 AM

I think yesterday's low of about $540 on spot Gold was a cycle low. In any event, the risk:reward factors have clearly shifted in favor of gold and against $USD. (see UPDATE)

These charts will show the bottoming RSI on $GOLD (near futures) and topping for $USD (trade-weighted U.S. Dollar index).

The spot Gold chart at INO.com shows that following the bottom shortly after midnight yesterday, there has been a higher high, followed by a higher low, followed by a higher high.

Today I am expecting the previous low of about $553 to be tested. The price may get down to $564 (you can pin the tail on the donkey -- me -- later if you wish), and that is where I would re-enter the gold market and exit USD. I expect to see this test today.

Having said that, day traders must be watching the miners and the forex charts as well as the overall market for entry points.

Long-term traders (with 1 to 3 year time horizon) will likely find entry today to meet their objectives. The gold and silver miners ETF's (GDX in the U.S. and XGD in Canada) is the best long position to take. The bullion ETF's (GLD and IAU for gold and SLV for silver) are ok for those traders who still want to hold an unallocated asset position in precious metal bullion versus USD.

Canadians who want to hold unencumbered, allocated, segregated and insured gold bullion, the place to be is in the Central Gold Trust that trades on the Toronto Exchange under the symbol GTU.UN.

Long-term traders ought to scale in slowly until a second confirmation of a higher low is evident on the INO.com chart (or the daily data chart of $GOLD at StockCharts.com).

For traders who are interested in buying into the gold stocks, I have recommended a few riskier stocks in the past few days. Add to that list the ones I have mentioned previously: Alamos Gold (TSX: AGI), High River (TSX: HRG), U.S. Gold Co (USOTC: USGL), and Guyana Goldfields (TSX: GUY). I especially like silver and Silver Wheaton (TSX and NYSE: SLW), which is a holder of silver royalties and Silvercorp (TSX: SVM), which is a very high grade silver miner in China. The Canadian-listed stocks have all been registered with the SEC to trade in the U.S. I believe.

The Cara 100 goldminers are Barrick (TSX and NYSE: ABX) and Newmont (NYSE: NEM and TSX: NMC). Also good are Goldcorp (TSX: G and NYSE: GG), Glamis Gold (TSX and NYSE: GLG).

GICS 15 Barrick Gold Corp (ABX) (ABX) Financial Data

GICS 15 Newmont Mining Corp. (NEM) (NEM) Financial Data

It will serve you well to review the company websites to get a better feel for all these companies.

UPDATE: 5:12pm

No pinning the tail on this donkey!

7:28am article calls for a pull-back to $564 and then reversal. Check out the chart for 1:30pm -- as MarkM points out.

I just love trading!

Posted by Posted by Bill Cara on June 15, 2006 07:28:13 AM | Category: Bullion , Forex , Goldminer Producers

Discourse

Hmm....

Those charts look familiar. ;)

575 is resistance. Lot of selling should take place thereas scared traders cover "bad" entries. Conservative traders may want to see a floor established above that. Otherwise the 543 area will still be in play. Again, just my opinion.

Of course, I may be missing "the big picture". :)

Posted by: MarkM at June 15, 2006 8:14 AM [link]

Thanks Bill.

What do people think of energy here? Is energy dead in lieu of anticipated global economic slowdown, or could we see a rally here in sympathy with a rise in gold/weaker US dollar.

I see Suncor's daily and hourly RSI have crossed back above 30 yesterday. It's hurricane and summer driving seasons and there's what looks to be intensified conflict in Afghanistan.

I know that Bill traded a few of the energy plays a few weeks back and am wondering if the risk/reward for the same type of trade sets up favourably now.

Thanks,
Doug

Posted by: doug11 at June 15, 2006 8:29 AM [link]

Bill,

Bill,

Here is an interesting article for your blog readers. Your assessment of this would be appreciated by all of us.

Thanks.

Tifosi

http://yahoo.reuters.com/news/articlehybrid.aspx?type=comktNews&storyID=urn:newsml:reuters.com:20060614:MTFH30708_2006-06-14_16-09-55_N14210743&pageNumber=0&imageid=&cap=&sz=13&WTModLoc=HybArt-C1-ArticlePage2

Central banks to add Mortgage Backed Securities, agencies, gold

Posted by: Tifosi at June 15, 2006 8:53 AM [link]

Bill, 564 tested at approximately 1:30pm on the INO chart then gold recovered from there and is now up aftermarket by $9, so I guess it is sunny in Canada. :) Hold and closes above 575 would be very positive development.

optionoracle-

You made out like a bandit on your entries here. Good going. That entry should be good until next wave down in the market and maybe even then. 120 floor looks solid.

Posted by: MarkM at June 15, 2006 4:51 PM [link]

Great call on the $564 indeed. I was caught napping yesterday but sure enough it came back to me and bounced off the this new upward trend of higher lows right around $564 like you said and allowed me to maximize the day's gain despite my late entry.

Although I feel all these prices will look good in the long term. In general, the risk management in me persuades me to do my scaling in after each new "higher low" is established when the prices bounces off the trend line of the lows on an upward trending stock. Is there anything fundamentally wrong with this approach?

Posted by: rusticuf at June 15, 2006 11:11 PM [link]

More specifially, if the strength persists in foreign markets throughout the night, then of course miner stocks will gap up significantly tomorrow at the open. In which case, I'd look to scale in additional exposure with a possible retest of 575-580 sometime from 11am - 2pm.

Posted by: rusticuf at June 15, 2006 11:53 PM [link]