The media drones on and on like some empty, faceless, meaningless noise, and thatís on a good day. On a bad day itís like fingernails on a blackboard; this horrible shrieking noise that never letís up. When I grew up I caught the tail end of Edward R. Morrow, a chunk of Walter Cronkite and most of Huntley & Brinkley, and it was still news mixed with a lot of truth and little or no effort to shape your thoughts. Now itís all about numbing your brain and getting you to buy some worthless piece of garbage that you really donít need anyway. The financial news is more of the same and the "garbage" they are selling are paper assets. Anything that gets you to do that is good and anything that takes you off of the chosen path is bad. Stocks are good; gold is bad! Itís as simple as that.
Of course I demure and I suppose itís genetic. I suspect I come from a long line of folks who spent considerable time tilting against windmills. Some were rewarded; most werenít. I view gold not as some smoky fantasy involving riches beyond my wildest dreams, but as a way to protect myself and my family from a future fraught with peril. In my lifetime there have always been beacons in the darkness, and you could choose to walk toward the light or not. Today, with the exception of Ron Paul, there are no beacons. The truth is the enemy and any truth teller needs to be humiliated into submission. If that doesnít work you accuse him of terrorism, lock him up without benefit of council, and throw away the key. When the government goes after you the very first thing they do is seize all of your assetsóeverythingóand then they put in a "trustee"to oversee those assets. You are penniless and no lawyer will work for free. Often the trustee will use your assets to prosecute you! The U.S. Constitution is but a distant memory.
Gold, assuming I can hang onto it when they come to knock on the door at 4 a.m., will allow me the freedom to live in decent comfort until thing get better. My only downside risk is that governments stop printing and live within their means. I donít know of anyone who believes that and it wonít happen anytime soon. I wish it would, but I canít live on wishes and neither can my family. You canít either.
Thatís my take on things but I am in the minority. Unfortunately most people who invest in gold are fearful when they should be bold and bold when they should be fearful. They are champions at throwing in the towel at precisely the moment you should buy. I suppose thatís due to the reason that gold is the only market I can think of where both fear and greed can be present at the same time, and it is an extremely manipulated market. Letís take a look at the current situation and I will expound:
In July 2011 gold rallied from $1,478.30/ounce (oz) to a new all-time high of $1,923.70/oz in September of that same year, and it was impressive to say the least. Then gold corrected all the way down to strong Fibonacci support at $1,522.20/oz, stopping at $1,523.90/oz in late December 2011. Since then gold has retraced slightly more than 61.8% of the decline stopping at $1,765.90/oz eight days ago. The decline required81 days to fall a total of 19.7%, and required just 23 days to recover almost 64% of what was lost. That is a sign of strength and not weakness, in case anybody is interested.
Now I want to look at whatís happened since gold hit $1,765.90/oz just eight days ago. In five sessions gold fell from $1,765.90/oz to a low of $1,706.40/oz, and that is a 24% retracement of the latest advance and mild by any yardstick. Yet I have clients who liquidated and I have clients who shorted gold recently because the "evidence points to a decline down to $1,640.00." On the other hand, I postulated in my weekend report (published Sunday) that gold had one of three options:
- There is a fifty percent chance that gold remains above $1,723.60/oz on a closing basis and then rallies.
- There is a 44% chance that gold revisits the $1,709.40/oz support for a third time early this week and then rallies.
- There is a 5% chance that gold could dip down to strong support at $1,694.50/oz and a 1% chance that it could fall as low at $1,667.50.
In reality weíve seen a mixture of the first and second as gold closed on Monday at $1,724.80/oz and dipped as low as $1,711.00 this morning, but is back up at $1,725.00/oz as I type. Every time gold dips down to $1,710.00/oz, buyers jump in and that is a sign of accumulation.
Silver has been lagging a bit over the long run but seems to be acting better than gold with respect to the current reaction as you can see here:
Silver has rallied from a low of $26.15/oz on Dec. 29 to a high of $34.52 on Feb. 8, and its decline is either two sessions or four, depending on where silver closes today, and each fall in price has been shallow. The overall reaction has yet to exceed 10% of the rally, as you can see above.
Gold continues to act well and this is in spite of attempts to pump up the U.S. dollar over the last three sessions. When gold first turned down last early last week I said the decline could last three to four sessions, or seven to nine sessions, and would not exceed 5%. A 5% reaction would be an $85.00 decline down to +/- $1,685.00/oz and we never came close to that. Today would be the seventh day down, assuming that tomorrow or Thursday would produce a final marginally lower low, but I suspect the low is in. In any event there is nothing in the past eight days that justifies abandoning your position, and only those seeking to throw away all their money should short gold.
Giuseppe L. Borrelli, The Unpunctured Cycle
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