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« Gold Going to $1500 – John Embry | Main | What the Heck Is Going on with China? »
Sunday
Sep132009

Gold at $1006.50, where’s $1033?

Gold chart 13 September 2009.JPG

On 11 September 2009 we wrote:

A further devaluation of the dollar is golds cue to make a record breaking move firstly to $1007 and then $1033 and above.

For a while gold popped up to $1011.90 before closing just below our target of $1007.00, nevertheless to close the week above the psychological level of $1000/oz is terrific news for bedraggled gold bugs.

As we see it we are about a year behind where we should be, our research and analysis concluded that gold would make new highs last year. We were wrong of course as we didn't see the massive amount of de-leveraging that was about to hit the market and turn everything to custard. Since then gold has stood tall and made a couple of runs at a $1000/oz only to retreat shortly afterwards.

When we look at the chart we can see that the gap between the 200dma and gold prices was significant. For instance when gold is at $1000/oz and the 200dma is knocking around the $800/oz level we could say that the gap represents a 25% premium to the 200dma. This is not too bad a divergence but in our experience when that gap grows to the 50% mark then a correction is usually on the cards. As things stand right now gold is at $1006.50/oz and the 200dma is at $913.32/oz, so the gap is less than $100/oz or less then 10%, so we are fairly comfortable with it. We can also glean from the chart that the 50dma and the 200dma are moving north in parallel, which in our humble opinion lends support for gold prices to rise further. The RSI is now at 74.01 which is a tad too high for us, however this indicator can move sideways at this level for some time. Our preference would be for it to be at a lower level at this stage, but we cant always have perfection and have to make investment decisions based on what we have in front of us.

We are currently 85% 'in' with 15% in cash, so we will probably retain 5% of the cash for future opportunities and deploy the other 10% as and when a suitable opportunity presents itself. At the moment we are sitting on our hands waiting for gold to make a decisive break above its old high of $1033/oz, which in our opinion would signal that a much bigger rise for gold is on the cards.


In conclusion, hang on to your core position in precious metals regardless as it could be fairly volatile from now on in. This volatility will no doubt have a few dips to scare the socks off us so try and treat them as opportunities to pick up a few more of your favourite stocks or add to your physical position. We are also working on a few possible options trades which may be of interest to you and we will table them when the time is right.

Have a good week.

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Reader Comments (2)

This is it, gold is done now. All the possible upside was made, dollar is gonna kill it and now the best thing to do is short it, as i am.

September 14, 2009 | Unregistered CommenterDi

Hi
Could I please have an update on the securities that you hold in your model portfolio
Haven't had one in a long while
Many thanks
alan

September 14, 2009 | Unregistered Commenteralan

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