Gold, Big Move Coming

Commodities / Gold & Silver 2009 Sep 03, 2009 - 02:55 AM GMT

It looks as though the multi-month correction in precious metals is coming to an end and very soon, we are going to get a major move. If the bull-market is still intact, then gold should break above US$1,000 per ounce within a few weeks. However, if the price of gold fails to do this, we could see a sharp decline in bullion and precious metals mining stocks. Put simply, if the price of gold fails to climb past US$1,000 per ounce and instead, it falls below US$920 per ounce, it will be a negative omen. At that point, our suggestion would be to immediately sell precious metals and related stocks.

Yes, the macro-economic is wildly bullish for precious metals and we have been bulls since 2001. But this has now become a very crowded trade and in order to sustain the bull-market, gold must trade above US$1,000 per ounce. Today, most precious metals investors are positioned for an explosive rally and if gold fails to climb to new highs very soon, we may get forced liquidation from the frustrated bulls.

Under this bearish scenario, the price of gold and other precious metals could plummet and this is the reason why we are suggesting that you exit your ‘long’ positions if gold breaks below US$920 per ounce. Although the weekly chart for gold looks like a gigantic ‘inverse head & shoulders’ bottom formation, it could also turn out to be a massive double top. Remember, gold’s chart pattern looks eerily similar to copper; just before it staged a spectacular decline last year. So, we will have to wait and see how things play out for precious metals.

In our view, the direction of gold’s breakout will depend on the US Dollar Index, which is currently trading above a major support level. Yesterday, the US Dollar Index managed to break out of its declining trend and this is good news for the greenback. Over the following days, if the US Dollar Index closes above the 80 level, it will be a big positive for the American currency and a drag on precious metals. Conversely, if the US Dollar Index breaks below the 77 level, it will usher in the anticipated rally in precious metals. So, in the near-term, we suggest that you keep a close eye on the US Dollar Index as movements over here will determine the fate of gold and silver.

In summary, if gold fails to reach new highs and on the contrary, if it breaks below US$920 per ounce, we urge you to liquidate your holdings in precious metals. Moreover, if the US Dollar Index breaks above the 80 level, we advise you to convert your cash reserves to the American currency.

This strategy may seem flippant to some of our readers but given all the uncertainty in the economy, we do not want to dismiss any possibility. More importantly, we want to ensure that we are prepared for all eventualities. Remember, Wall Street is littered with the graves of those who got married to one market forecast and failed to smell change. Instead, we prefer to be vigilant and will continue to adjust our investment positions based on market action.

Puru Saxena publishes Money Matters, a monthly economic report, which highlights extraordinary investment opportunities in all major markets. In addition to the monthly report, subscribers also receive “Weekly Updates” covering the recent market action. Money Matters is available by subscription from www.purusaxena.com.

Puru Saxena

Website – www.purusaxena.com

Puru Saxena is the founder of Puru Saxena Wealth Management, his Hong Kong based firm which manages investment portfolios for individuals and corporate clients. He is a highly showcased investment manager and a regular guest on CNN, BBC World, CNBC, Bloomberg, NDTV and various radio programs.

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Only logged in users are allowed to post comments. Register/ Log in

The Market Oracle is a FREE Financial Markets Forecasting & Analysis web-site.
(c) 2005-2024 MarketOracle.co.uk (Market Oracle Ltd) - Market Oracle Ltd asserts copyright on all articles authored by our editorial team and all comments posted. Any and all information provided within the web-site, is for general information purposes only and Market Oracle Ltd do not warrant the accuracy, timeliness or suitability of any information provided on this site. nor is or shall be deemed to constitute, financial or any other advice or recommendation by us. and are also not meant to be investment advice or solicitation or recommendation to establish market positions. We do not give investment advice and our comments are an expression of opinion only and should not be construed in any manner whatsoever as recommendations to enter into a market position either stock, option, futures contract, bonds, commodity or any other financial instrument at any time. We recommend that independent professional advice is obtained before you make any investment or trading decisions. By using this site you agree to this sites Terms of Use. From time to time we promote or endorse certain products / services that we believe are worthy of your time and attention. In return for that endorsement and only in the cases where you purchase directly though us may we be compensated by the producers of those products.