Golden Triangle

I wrote a piece over at Bullion Directory titled True Gold Fan Speaks of Future Price. In what was almost an afterthought, I drew a triangle on the chart and highlighted $1,306.40 as an important level that gold would need to move through in order to continue higher.

So, what happened?

The gold price moved just a little above the $1,306.40 level on the chart?

How close you ask?

The price moved to $1,307.00 - a little above our hastily drawn line, but still within the triangle.

Upon nearing the upper boundary of the triangle price has backed off a bit and is currently under $1,290.00.

If you haven't read the article over at Bullion Directory highlighted above, I would encourage you to do so.

The Pitchfan - a combination pitchfork and Gann Fan - used in the charts above points to some important levels that gold will have to overcome in order to move higher. The Pitchfan also gives an idea both in terms of time and velocity the relative difficulty the gold price will have to traverse through each shaded resistance level.

Bottom Line: The gold price looks to be taking at least a temporary breather today. Will be interesting to see if the ECB QE announcement (or non-announcement) will end up being a case where gold is bought on the rumor and sold on the news, or if it will push price higher. Regardless, gold still needs to break out of the triangle pattern in order to move higher. Until it does, I don't expect price to move up much more. In fact, if price doesn't crack the upper boundary, it might move lower for a bit - we'll see.

GLD - Head in the Clouds?

Does GLD have its head in the clouds? Well, not exactly. But, as you can see from the chart above, the price of GLD has been nearing the Ichimoku Cloud.

The Ichimoku Cloud is a pretty interesting, multipurpose indicator. If you want the full explanation please click here.

The short version is that when the price is below the shaded areas, or cloud, price is in a general downtrend. When price is above the cloud, it's in an uptrend.

The chart makes that pretty clear. You can see the big run higher in GLD and the subsequent decline in prices.

Since 2011, GLD has spent most of the time either below the cloud. The few times price has entered the cloud marked times of more neutral, sideways price action.

With the price of physical gold pressing higher, we could see price make an attempt to rise either to or above the cloud. You can't see it because it is obscured by the price bars, but if the blue line crosses above the red line then it could indicate further upward price momentum for the GLD.

It is also considered bullish for prices when the price crosses above the red base line. Price has spent at least part of the last two weeks above the base line.

As an aside, the above chart of the GLD cloud is almost identical to the chart of the Comex Continuous Gold Contract, so it is a pretty good stand in for the gold price.

Bottom Line: The GLD price has picked up some strength the past two weeks. The test will come when it bumps up against the cloud. Until price can move above the cloud strongly it's best to assume that the overall trend is still down.

Dollar Fan?

Ah, the beloved U.S. Dollar. There is a dollar fan here. No, not me, the fan above, or more appropriately, the Pitchfan.

What the heck is a Pitchfan? It's a combination between a pitchfork and a Gann Fan. It also can be used to get an idea about the velocity (or acceleration) of a price move.

For example, the dollar has been caught within the -1.000 level pretty much since the end of 2010.

This level, or band, is pretty wide and it has taken the dollar a pretty long time to move anywhere near the top of it.

I suspect the next band labeled -0.750 is going to offer some stiffer resistance to the dollar price moving higher. Why? Well, the dollar tried to cross above that level back in 2010 and 2011, but never could stay above it for any significant length of time.

It also doesn't appear to offer much support either. It appears that in the past when price has neared the -0.750 level it moved down through it fairly quickly.

Another thing I see as a challenge for the continued move higher in gold is the developing divergence between the U.S. Dollar Index (DXY) and the Commodity Channel Index (CCI). You can see each there was a divergence between the CCI and DXY (black line slopes down on CCI indicating weakness while DXY climbs higher as marked by lines sloping upwards), the dollar ultimately moved lower. You can read more about the dollar divergence at Dollar Divergence: Is Momentum Weakening?

One other thing about the above chart - I think the dollar price needs to convincingly move above the upper parallel line of the Schiff Pitchfork or risk reversing lower, at least temporarily.

It's difficult to put a time on when the dollar might move lower.

I believe a large part of the dollar's move higher owes to economic stress worldwide, but especially in the Eurozone. There is a lot of money looking for a "safe" (or at least somewhere perceived as safe) place to be parked. The U.S. Dollar is attracting this money seeking the proverbial safe haven.

So, all of that money sloshing around seeking a safe haven makes things, like always, a bit unpredictable.

However, unless the Commodity Channel Index turns back up and rises above the black resistance line to match the upward track of the dollar, I would expect - at some point - the dollar has to take at least a little breather.

Bottom Line:  Undoubtedly the dollar can go higher. Expect resistance in the area marked -0.750. Also, at some point the dollar divergence with the CCI should resolve. Unless the path of the CCI changes, it should resolve with a dollar move lower, even if it is only a short-lived move.

Postscript: On a weekly basis the dollar is looking a bit stretched - not that it can't go higher, but RSI has reached at or near levels not seen since 1997. Even a drop in RSI, as you can see from past history doesn't mean the dollar will drop for long. If the dollar can make a strong weekly close above $92.63, it could continue to advance in a similar manner to the 1990's to 2000's dollar advance. In fact, the dollar would only need to make it to the -0.382 level to have a shot at equaling the DXY level of  of the early 2000's.

HUI HUI

The HUI has got a nice bounce, moving from 146.00 to 200.87. It's nothing to sneeze at.

As you can see the move to 200.87 also broke a downtrend line dating back to September of 2012.

Yet, there are still a few tests to come:

1) Can the HUI break above the trend line dating back to August of 2013?

2) Will the HUI be able to break out of the Andrews' Pitchfork? Its current upper parallel channel is currently a little below 250.00.

Some of this will depend on whether the gold price is moving higher or if gold is approaching overbought levels and the price pulls back.

Gold Price Moving Higher? Another Perspective

#Gold: Technical Thriller! Update #FOREX by Technician on TradingView.com

An interesting look at gold by Technician at TradingView.

There's always more than one way to look at things.

I still tend to think gold is going to run into trouble before advancing too high.  Gold is looking overbought.

There are some other technical indicators that point to the gold price upward momentum weakening as well.

Regardless, I think it is always a good idea to look at various ideas and opinions about the gold price, or anything else for that matter.

Thought I would add this additional chart for yet another different point of view on where the gold price is headed.

Gold - Big Picture Review by yacine.kanoun on TradingView.com

Trade Agreements Mean Nothing for the Dollar

Image: pixabay

The gold and silver communities are treated to an almost endless stream of same old same old commentaries about how some Russian or Chinese trade agreement is finally going to be the final nail in the dollar coffin.

These stories, when printed, are suitable for papering bird cages with.

The amount of dollars used in actual trade is relatively insignificant. What the authors of these never-ending Yuan stories fail to realize, or to tell you, is that countries are looking for somewhere to park their money.

The only place big enough for the vast money flows to be parked in is the U.S. Dollar.

At some point the U.S. Dollar will be replaced by something else as the reserve currency, but it won't be because China or Russia sign their billionth trade agreement or because the Yuan becomes gold-backed.

These stories can be only one of two things:

1) Ill-informed;

2) Deliberately misleading in an effort to sell you something

Gold doesn't need these kinds of stories to justify buying and holding some of it.

There is real economic distress in the world. A Sovereign Debt Crisis is coming. It will be that debt crisis that will likely act as an impetus to move away from the dollar. You'll know it is getting nearer if other currencies start cracking up while the U.S. Dollar continues to rise. You'll know it is upon us when the debt crisis explodes and throws the world into a widespread economic panic - aka, a depression.

But, again, the shift from the dollar will have little to nothing to do with trade agreements and they are relatively unimportant. The endless stories covering these types of agreements is a waste of time. Once you read the first one, you have read all of them - and since trade is not the most relevant piece of the puzzle, you probably didn't need to read the first of these stories, much less the rest of them.

Why the Cheer-leading for Russia and China?

Image: pixabay

I read quite a few articles that circulate and are popular within the gold community. Some of these articles, especially those touching on the U.S. Dollar and its status as the reserve currency, seem to take a very positive view of Russia and China.

Of course everyone is entitled to their opinion. You can even express your opinion in some places still, although governments around the world seem to want to stifle dissent by creating a massive surveillance state.

Having said that, I'm puzzled by much of the cheer-leading for China and Russia. Perhaps some of the enthusiasm owes not so much to those countries themselves as it is a protest against the United States. If so, I can certainly understand. The U.S. has done, and continues to do many things that I am opposed to.

My question is, for those who cheer on Russia and China is, "How is the world going to be any better under widespread Russian and Chinese influence?"

I'm not one of those people who say my country right or wrong, or my country love it or leave it. I think people should be able to live where they want to. Curiously, however, I don't see many who cheer on China and Russia moving to either country. I believe in free markets and that people vote with their money and their feet. So, why aren't more people picking up and moving to Russia or China?

It's a bit of a rhetorical question. To me, the reasons are obvious. Many of the people who serially write positive pieces about both countries, and others who make positive comments about them and the "ever pending" decline of the U.S. Dollar, don't want to live under Putin or under China's Politburu Standing Committee of the Communist Party of China (the name certainly rolls right off the tongue).

The United States government certainly does it share of stupid things with regards to the economy. The Fed's incessant meddling isn't helping anything either. But the whole of China is, in theory, governed by a tiny communist committee. Russia is widely viewed as being controlled by a small group of oligarchs. A pretty good argument could be made that a pretty small group of people exercise control in the U.S. as well. I wouldn't argue against that view.

However, a few things come to mind. First, I don't think Russia or China come even close to the U.S. with regard to respect for property rights, innovation, respect for the individual, opportunity or freedom of expression. Certainly there are issues in each of these areas in the U.S. The U.S. is a very imperfect place.

But, for me, the question is would I trade this imperfect place for a life in China or Russia. The answer is clearly no. Would I trade the imperfect influence of the U.S. and replace it with the influence of China and Russia? No.

There are no blameless countries as there are no blameless people, but we all make choices what kind of people we prefer to associate with. Likewise, we all make personal choices about the country we live in as well. This doesn't mean I'm saying I will always remain in the U.S. But I am pretty clear that Russia and China aren't at the top of my list of alternatives.