by: George Maniere
July 1, 2011
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Every day I open up StockCharts.com and I redo every one of my holdings. By doing this I am able to be conversant in every stock I own. This morning as I was redoing the Gold ETF (GLD) I noticed an eerily familiar pattern that had developed at exactly the same time last year.
The people that are my regular readers know that I like to play nice in the sandbox so in fairness I will say here and now, this is not last year. There is a direct correlation between the weakening dollar and the rise in gold. Since the Greeks have agreed to austerity measures, that has caused a strengthing of the euro. This will also have an adverse effect on the gold. I believe that sooner or later Dr. Bernanke and the Feds will have to resort to another round of quantitative easing, which will cause investors to run back to the safe haven of precious metals. However, until that happens, I conclude gold will continue to weaken. For the time being, the blatant printing of fiat money has been ended – at least for the time being. It will be interesting to see if the patient survives. I believe the market has seemingly priced in the fact that we will have to survive without QE3. The market has acted in a very bullish manner in face of this. Until Dr. Benanke and the Feds cave to the political pressure to issue another round of QE, we will see gold and it's poor cousin silver continue to weaken.
As the chart below will bear out, the latest gold price action is strikingly similar to the pattern that unfolded at precisely this time last year. The reason I want to alert my readers to this is that if this pattern holds true again, it will provide traders with a good roadmap and price targets for trading gold in July.
What I am finding very interesting is that there seems to be a clear pattern now repeating itself on the gold charts that developed exactly one year ago.
Let's take a look at the pattern a year ago, compare it to now and over the next few weeks. By doing so we will see if the future pathway of the pattern plays out as it did back in July 2010.
First, take a look at the chart below. The chart clearly shows a broad picture of a repeating pattern of price swings.
Notice how in April of 2010 we had a move up (1) followed by a small correction (2). Then we had a substantial move to the upside (3) followed by a correction of about one half of the previous move up (4). This was followed by another nice move up (5) followed by a substantial correction back to the level of the first correction (6).
Now let's take a look at the exact same time period in 2011.
A look at the chart will show an eerily familiar pattern that has developed. The only X factor will be the final leg downward. If this final leg corrects back to the 150 day moving average, as it did in 2010, we will have a good indication of what to expect from GLD. Look at the chart. The signs are all there. If leg 6 pulls back to the 150 day moving average the RSI, the MACD and the slow stochastics will all be exactly where they were in 2010. Trust your charts!
Disclosure: I am long GLD.
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