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Nadeem Walayat Financial Markets Analysiis and Trend Forecasts

Gold Price Making a Base

Commodities / Gold and Silver 2010 Jan 03, 2010 - 12:13 PM GMT

By: G_Abraham


Best Financial Markets Analysis ArticleI have been on record that am not a gold bug but when opportunity presents itself, one does not care whether one is a bug or not or whether one knows anything about the asset at all. The Gold opportunity is one such case. Nearly the whole world is going negative on it as it has crashed 11% from its peak. Even when it climbed, HUI Gold sentiment index was never close to its all time highs. Now that it has crashed it is well below its average. That just shows Gold is again turning to be hugely a contrarian’s call.

Gold charts clearly is showing a solid base being made which is going to take its next logical target of $1300 before March 31 2010. I have peak target of $1500 in 2010 before it crashes back to 950 by the end of the year as FED will hike rates to increase demand for its auctions.

The charts are annotated with explanations.
Any bull rally needs the previous longs to be taken out and new people to enter. That is exactly what has happened as volumes indicate. In spite of the long volumes being taken out, the RSI is above 40 and STO is turning up with a strong inverted H&S pattern.
These are all very bullish signals for Gold. Gold may not go beow India buy price of $1,045.

One of investment themes for me is GOLD for 2010 at prices below $1100 with a near term target of $1300 and a 2010 target of $1,500.

I have only discussed the charting aspect for GOLD. the fundamentals for Gold are even stronger than before:

  • FED target for Debt auctions for 2010 to be larger than 2009 and may cross $2.5 trillion. This is the best case with FDIC losses under control. If there is any further housing price fall, FDIC losses will accentuate and increase the FED auction limits.
  • Central banks around the world are net buyers. Therefore there is no large scale dumping of Gold except the naked short selling at COMEX.
  • Investment demand for Gold is only going to rise with ETF launches increasing by the month. Paulson is the latest to have launched GOLD ETF. I will never doubt a winning hedge fund manager. They normally have a tendency to repeat their success. Paulson was among the stars of the sub prime era as he shorted it to its limit.
  • GOLD supply demand have never been more favorable as supply has been consistently been falling.

Gold is a peculiar asset class which is being supported by both technicals and fundamentals. The question is what happens when FED raises the rate. The obvious answer is GOLD will melt down to $950 but not before it takes out $1,500.

A rule in investing:

When technicals and Fundamentals both support a rally, Go for it !!!

Godly Abraham

Formerly a hedge fund analyst for India's largest fund house and currently a Private Equity fund analyst with a swiss firm, Godly Abraham is an active writer at INVESTING CONTRARIAN which is a daily online publishing house, covering investing ideas and economic analysis on wide ranging topics but mainly specialized to covering US,UK, EU and BRIC countries and their political ramifications.

© 2010 Copyright Godly Abraham - All Rights Reserved
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.

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