Gold markets took a swan dive
Posted by Frugal on March 21st, 2008
Geez, that hurts (a lot). I should have acted according to my own mathematical model.
I really thought that PM markets were in the major wave 3 in Elliot wave. Now I’m not so sure. If the recent peak is the termination of major wave 1, there will be quite a long correction before PM. And that simply doesn’t bode well for anyone looking for a continuation of the bull market.
If the recent peak is wave 1 of major wave 3 (which was my initial count), or wave 3 of major wave 3 (which is the most straightforward count, but therefore cannot be true when it’s so easy), then the correction may last less than 2 to 9 months at the longest.
I just found out that US Mint suspended or put a long delay on silver Eagles because of lots of purchase order. That is certainly not good, since public or the crowd would probably invest in coins first. I’ve also kind of kept track of the tonnes held in GLD. Before the zoom up from $910 to $925, there were about 630 tonnes. After the swan dive, at Thursday closing, there were about 637 tonnes. At the peak, there were 663 tones. The first day, 15 tonnes were withdrew. The second day (yesterday), 11 tonnes were withdrew. Apparently, it was simply billions of hot money that went in and then went out.
So is this hot money from the public? Moving at such fast speed, the most likely source is from the speculators and hedge funds rather than long term investors.
I still think that the recent peak was probably more like wave 1 of the major wave 3. However, one cannot count out the possibility of wave 5 in major wave 1, in which case, you may see PM to correct and take out the over-boughtness on the monthly charts to the long-term moving average. That will be extremely ugly to say the least.
Can the gold bull market be finished right here? I think the chance is quite slim. But again one must be open-minded at all times.
I’m going to wait for my model to turn up again before making any new purchase. I just refined my model again, and added in the commission and a few more details. It is at least outperforming index by 3X, and if I add intraday tradings, it would outperform by close to 9X (although it’s probably lower because I didn’t have 1-minute data for calculating a correct return).
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March 21st, 2008 at 5:12 am
It could possibly be that the markets are responding irrationally to unknowns rather than in some pre-defined pattern . . . when you find a chart that looks like Jesus, let me know.
March 21st, 2008 at 7:43 am
Im a newbie when it comes to financial things, and i find it difficult to follow what you are saying in your blog. Id like to educate myself, but im intimidated by all the confusing language. Any suggestions as to what i can do to remedy this problem?
For example, I dont know what an elliot wave 1-5 is, although i could look it up. I dont understand the significance of the tonnes GLD(gold?), or what “hot money” is, or why its important to know where its comming from.
What is “over-boughtness” and what is its relation to the long term moving average, and what does it mean that things could get ugly?
thanks
March 22nd, 2008 at 7:07 am
Newbie: Try Technical Analysis for Dummies-Great jargon clarifier
Also wikipedia any terms you don’t know and marketstocks.com has good tutorials
Join a forum like ex: Kitco.com Lots of opinions but read and educate yourself before doing anything
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Frugal: Love your blog..
>the correction may last less than 2 to 9 months at the longest.
My predictions as well..could be like 2006 over again
I am into it for the long term but sentiments are that a 850/ounce price by summer is not unrealistic and have even heard some say 700 which would certainly mean a bear trend.
>Can the gold bull market be finished right here? I think the chance is quite slim.
Again my sentiments exactly. I am no gold bug but I do see it reaching 14-1500 by 2009.
I’m strictly into physical. Bought AU at 700 and AG at 20. Rarely do I trade but I’d love to hear your opinion because it may be appropriate to take profit and wait till the late summer. And what would you do with the cash in the meantime if I were you? We are taking large sums so I am also considering selling AU 20 rands a time. Please advise and thanks.
March 22nd, 2008 at 7:22 am
Correction: We are talking large sums so I am also considering selling AU 20 rands a time. Please advise and thanks.
March 23rd, 2008 at 6:15 pm
Claudia,
I can’t really give advice for individual requests. You’re responsible for any of your decisions taken (see my legal disclaimer).
Right now, the markets are still unclear. If gold breaks $900, then we will be looking at a deeper and longer correction. (But of course, by that time, it’s a little late to sell.)
I’m currently holding, but I could sell anytime without further notice.
March 24th, 2008 at 3:18 am
850 is long term… 20 year support now.
I dont see gold falling lower than that. Maybe a day or two, but that support is Major.
my 2 cents
March 24th, 2008 at 11:40 pm
Dear Frugal,
Do you believe that the Bear Stearns bail-out would be the last chapter of the credit crunch ? For me, I feel it is a case of the dead cat bounce. Should you have to unload your stocks, it is time to do so. Otherwise, it would be too late for the last train.
The 75 basis points cut , the bailout of Bear as well as taking MBS as collateral for the $200 Billion offer for Treasury Securities (that are easily tradeable) for troubled investment banking community is a shame and using taxpayers money to bail out the commercial sector is a bad precedent sice the Great Depression and I do believe it is just the beginning of the end i/o the end itself.
The credit crunch as well as the subprime mortgage woo amounts to a $ 2 to $ 6 trillion problem that could not be solved just by the Fed ( unless it forgets about inflation or hyperinflation to print out more greenback for the market or the financial market just for the sake to soaking it with liquidity to salvage this endangered species).
We are in fact in a recession no matter how hard you deny it or how high hand the Fed as well as Hank Paulson to stabilise the market.Yes,it seems true that business cycles are replaced by ‘Bubble Cycle’ because the Fed is determined to do whatever it can to salvage the market dating back to when Alan Greenspan took office 20 years ago. Unlike Paul Volcker who followed the rules of the market and stayed independent of politics so that he could raise the nominal rate to over 20% to kill hyperinflation irrespective of economic growth but both Alan Greenspan and Ben Bernanke are not Paul Volcker and they succumb to not only political pressure but to Wall Street and have been too afraid of even slowing economy, not to mention a recession. If Bernanke is in office for the next 20 years, we may see more bubble to be formed and to bust and his heavy-handed ways to save Wall Street. Are we going to have no more business cycles and to be replaced by bubble cycle? If we look at dot-com bubble, housing bubble, credit bubble and the most recent commodity price bubble, it seems evident we are in for a very rough ride.
Dear Mr. Frugal, what do ya think?