Gold And The Black Swan

Posted by Stewart Thompson: Gracesland Updates

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1.    Gold appears to be entering the “summer doldrums” season, but there are some black swan issues that could add a lot of volatility to the market.

2.    Please click here now. You are looking at an article from The Economic Times of India, and it’s pretty clear that demand for gold has slowed down, as it often does at this time of year.

3.    When demand for physical gold slows down in India, the price often tends to meander aimlessly, frustrating both the bulls and the bears.

4.    Please click here now.  That’s the daily T-bond chart.  It’s difficult for gold to rise if bonds can’t move higher, and the bond chart seems to suggest that gold is heading for a period of lackluster price action.

5.     You can see that my “stokeillator” (14,7,7 Stochastics series) looks terrible.

6.    It’s oversold, but it looks tired, like a burnt-out athlete. 

7.    Please click here now.  Double-click to enlarge.  That’s the weekly chart of the Dow, and followers of the “sell in May and go away”mantra are extremely frustrated.

8.    Many gold market investors are momentum-oriented, and they want to be where the action is, even if there is value in owning gold at the current price.

9.    The relentless rise of general equities continues to attract money from gold.   That’s unlikely to change unless the Dow “finally” takes a real hit.  May has come, and it’s almost gone, and still there is no sizable sell-off! 

10. At the end of the 1970s bull market, the Russian invasion of Afghanistan caused investors to pour into the gold market.

11. A geopolitical event like that could be a game-changer for the stagnant condition that gold is experiencing now, but how likely is such an event?

12. Well, the situation in Syria seems to be worsening, and the action of my stokeillator on the daily gold chart does suggest that some sort of rally is imminent.

13. To view that chart, please click here now. There’s a double bottom pattern in play, and the stokeillator lines have just crossed this morning, producing a “buy” signal.

14.  I like to buy in anticipation of these crossover signals, focusing my buying around major HSR (horizontal support & resistance).

15. The stokeillator buy signal should come after I’ve bought, so it is really a “potential profits are coming” signal.

16. One geopolitical event that could be a game-changer for the gold price is the civil war in Syria.  Syria and Israel both have enormous military forces, and President Assad seems to be having a hard time on the domestic front.

17. It’s unknown who would take Assad’s place if he were to lose the civil war.  Regardless of who took over, it’s hard to see the Syria-Israel relationship getting better.

18. Other countries could also take sides in a Syria-Israel war, and many geopolitical analysts are concerned that a large conflict is imminent. 

19. Perhaps the Syria-Israel situation explains why my bond market stokeillator is flat lining, while the gold one is hooking up into a crisp buy signal?

20. Please click here now.  You are looking at the hourly bars chart for gold.  Note how close the gold price is now, to the rising blue trend line. 

21. That line represents demand.  Aggressive swing traders should be heavy buyers now, with tight stop losses at about $1375.  I don’t use stop losses, except in my day trading, which is a small part of my gold market activities. 

22. Day trading does help eliminate boredom, but I’ll dare to suggest that a Syria-Israel war will do a much better job at eliminating it. Unfortunately, a war like that is likely to replace boredom with the blood of many innocent people.   Governments are the most violent serial killers in the world, in my opinion.

23. Remember that the target of the double bottom on the gold chart is $1680, but it only “activates” if gold trades over $1500.  The Syria-Israel conflict could be the geopolitical catalyst that makes it happen.  Short covering by funds would reach almost surreal levels, in such a situation.

24. Please click here now.  Double-click to enlarge.  That’s the weekly GDX chart, and it almost looks like the Dow chart turned upside down.  The RSI indicator is particularly oversold. Gold stocks offer value at this point, and they await a black swan event to catapult them higher. 



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Stewart Thomson

Graceland Updates

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