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Gold Takes a Breather
(November 29. 2010) Gold over the past couple of months has traded between $1307 and $1421. Since it first breached the $1300 level two days before this Halloween it hasn’t looked back. When its price reached $1420 for a brief moment three weeks ago, gold was all the rage…
2010 marks the ninth year of gold's bull market, and quite a year its been so far. Looking back through 2010, it was February when gold trading meandered below $1100, before it began its latest breakout to the upside. By November 9th it had tacked on more than $300 to reach a new record, a London PM fix of $1421.00. At that time, gold enjoyed such publicity in the financial and popular press that you could scarcely hear of anything else.

It was two years ago, in March of 2008, when gold first traded over $1,000 (for less than a week). Seven months later in that panicky year, it tumbled to the $715 level as investors sought refuge in the 'safety' of the US dollar. Three weeks ago, we saw gold trade at prices nearly double that Panic-Era low.

This year, gold prices have so far averaged over $1200. And ever since gold first traded above $1300 two days before this past Halloween, prices have not seen a serious retreat back to that level.

What the short-term future in the precious metals markets will be is anybody's guess. And to find some guesses about price direction from here, we turn, as always when seeking knowledge, to the vast wisdom found via Internet searches. We cite (but will not name, for his own good) one technician of the precious metals markets, who helpfully informs us that:

Gold is forming a bullish and bearish pattern also giving us a mixed signal.

As for silver, what can you say, it’s complicated. Silver’s run this year has way outshined that of gold, so (price) history is on its side. As to the fundamentals of the shiny white metal, we hold our own opinions close to the vest, as they say. But the 'action' has been tremendous.

Once again we quote the above-mentioned unnamed technical analyst, in hopes that the following brings you clarity as to the silver market:

The silver chart below shows an extremely high volume reversal candle in early November which typically leads to lower prices and some times a major change in the trend. That being said silver remains in an uptrend with the possibility of a bullish pennant forming. On the other hand there is a possible head and shoulders pattern forming.”

The mind reels as we try to make sense of this bevy of contradictory possibilities in the silver market, if indeed the silver market is really the subject. Some questions come to mind: Whose hand, head and shoulders is he referring to, you might ask? Also, exactly what am I getting into here? Are there other body parts involved? The pulse quickens as we read the next sentence, the graphic answer which reveals all, holding back nothing:

I will be looking for light volume sideways chop keeping a close eye for a possible neckline breakdown or a momentum thrust to the upside for a possible trade.

"Neckline breakdown", or "momentum thrust?" - no wonder people get so excited about silver!

Where do we go from here? Gold, while no longer the neglected asset class that it was ten years ago, retains its undeniable appeal of simplicity and permanence. And, as I write this, gold prices have come down some 5% off the recent record high in US dollars. And in today's interest rate environment, 5% is a couple of years interest.

Whether this is the optimum time to buy gold, is a question that inevitably leads to the sort of verbal meanderings that we cited above. As always, you pay your money, and take your chances.

Corrections and Erratum:

In a November article, I poked fun at the Financial Times for using the word ‘glisters,’ and asserted that it was either a typo or some sort of British slang. Oddly enough, last week the same word was printed again in reference to gold, in an American newspaper called the New York Times. Therefore, I can now deduce with certainty that ‘glisters’ is not cockney slang. So, on behalf of the Times, both Financial and New York, we apologize for the typographical errors.

-Richard Smith 11/29/10


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