Gold preparing to break above the US$2,000 level

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Our patience with gold’s retreat has been rewarded and the time has now come to start to layer back in.

In my last report on gold on 22 October, The price levels to watch on gold, I noted a ‘buy back in’ level of US$1,692 to a 10% level in a hypothetical portfolio.

Prices fell and triggered that buy, but the next level of $1,664 for the next 20% parcel was just missed, with gold slipping to US$1,673 to be short by $9 on 5 November.

At a 10% loading for gold, we should be striving to buy more in the coming days and weeks.

The price levels to buy

For the purposes of this portfolio, I am instigating a buy of 30% more at current levels to go to a 40% weighting in terms of the overall most desired level of gold.

The next buy levels are as follows:

  1. 30% more at US$1,738 or if it does not fall to there, then on a break above $1,756, buy at US$1,756. Overall, you’ll have a 70% weighting in your gold position after this parcel.
  2. If it falls back to US$1,708, buy another 30%, which would leave you with at 100% weighting.

Set a stop loss of US$1,658.

Readers will be aware that gold in itself is meaningless as it is only used to adorn us with jewellery. Globally however, it is a currency in itself, not controlled by any government per se. As such, it is a reflection of many things. To name a few, the real value of the US dollar and most importantly the sentiment as to how the third quantitative easing stimulus package (QE3) in the US is tracking. This in turn answers many questions like, how will the other parts of the Globe fair in terms of economic performance, and do we have a risk on or risk off market environment?

Recently, it was successfully used to track the likely victor in the US elections. Gold price up meant an Obama victory. Gold price down meant Romney victory. I was in China at the time and the gold price gave a nice ‘heads up’ 24/48 hours before the results were known.

These key macro issues are as important to answer as, “Is Company XYZ profitable?” before investing.

The story is unfolding as expected in terms of what I like and don’t like about the chart.

What I like about the chart

  1. I wrote previously, “Other indicators starting to show we are on the cusp of a new uptrend.”  Then, “Now I confirm, the uptrend has begun, it is preferable but not absolutely necessary to see a nice retracement now to consolidate that uptrend.” The next story, called ‘The Retracement Story’ now looks complete, and if so, it’s a near perfect formation. Gold was at $1,795 on 5 October, falling to a low of US$1,673 on 5 November – a fall of 7% in exactly a month. When one considers point 5 listed below – that break out occurred at around US$1,660 (or US$1,680 on another basis) – the US$1,673 low we bounced off is right in the range of where a ‘retracement’ ought to be. We’re at $1,749 now.
  2. The chart is on track for a long term target of US$2,085.
  3. It looks like and feels like the run up we had from September 2009, and then April 2010. In each case, multiple upside targets were set, and all reached and exceeded.
  4. A solid base has been confirmed since my article of 14 June 2012 and then 3 September 2012. A solid bottom has been established from 16 May to 30 August.
  5. Gold has broken out of resistance of US$1,660.
  6. Target 1, at US$1,838, slightly revised down from $1,851 (the first yellow line on right).
  7. Target 2 of US$1,901 has not been altered.
  8. Target 3 of US$1,974 has not been altered.
  9. The Ultimate Target of US$2,085 has also not been altered.

What I don’t like

  1. The 200-day moving average is now flat. This is normal during a retracement in a new uptrend.
  2. We are about to retest the upside. This will determine if more sideways action is in store or we have the start of a new uptrend.
  3. US$1,754 is a test level; we reached this on Friday night. This needs to be cleared in a reasonable time frame.

Please note: my views are not for the long term. My method results in views expressed that relate to an outlook that lasts weeks or at most months. Your utilisation of this information needs to take into account the time frame I set. The stocks recommended as ‘Steady as She Goes’ may be held for the longer term, which for me means months.

Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Consider the appropriateness of the information in regards to your circumstances.

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