Gold: It’s Time to Buy
After hitting major support levels and being widely mocked by pundits, gold and the companies that mine it are at long last finally attractive.
By Michael Kahn
Nov. 19, 2014 4:31 p.m. ET
Over the years, I have made some bold calls on gold and often the pushback from those not sharing my views has been rather vigorous, to put it mildly. It’s time to once again risk the wrath of the haters and say that gold finally looks ready for a recovery.
No, I am not saying it is heading back up to its 2011 peak above $1,900 an ounce, at least not for the foreseeable future (it traded at $1,195 Wednesday afternoon). However, I do think in the long term we will see an important bull market return.
For the here and now, a potential reversion back to its 200-day moving average in the $1,250 area would indeed be a good first step on the road to serious recovery. If and when it gets there, we will likely see the chart set up for a run back to $1,500. We’ll look at that chart below.
.
Two weeks ago, gold futures dropped to a four-and-a-half-year low before rebounding. Weekly charts in the candlestick format show a very clear “hammer” pattern. By opening and closing the week near the high and recovering from an intraweek swoon, we got our first indication that the tide may be turning for the better. In Japanese candlestick lore, the market is said to be “hammering out a bottom.”
Last week, a similar weekly candle formed, once again showing the market surviving an intraweek selloff.
Moving into the daily time frame, the SPDR Gold Trust offers volume characteristics to add to the changing tone of the commodity. Borrowing from the stock market, it scored a follow-through day Friday by surging in price and volume about a week after the low (see Chart 1).
Chart 1
SPDR Gold Trust
William O’Neil, founder of Investor’s Business Daily, discovered this pattern and theorized that strong bounces after a major decline can often be bottom-fishing by short-term traders. However, if the surge occurs in a window between four and seven days into the rally attempt, it means real buying is coming back into the market.
That was the case for the SPDR Gold Trust Friday. And volume for the competing iShares Gold Trust was exceptionally high compared to its own normal range. The same goes for the iShares Silver Trust, too.
Last month, I wrote here that gold mining stocks were approaching a bottom (see Getting Technical, “Charts Suggest Gold Will Keep On Falling,” Oct. 30). By “approaching” I meant that the Market Vectors Gold Miners exchange-traded fund still had some downside, which in the context of its 2014 decline, was relatively small. Quoting, “…it does appear that there is enough room on the charts for a return to the lows of 2008. For the gold miners ETF, that could be a drop to $16, roughly 14% below Thursday’s trading near $18.20.”
The ETF hit $16.45 on Nov. 5, which is close enough for the short term and also close enough to the 2008 low of $15.83. The benchmark PHLX Gold/Silver sector index, known as the XAU, did indeed reach its 2008 low before rebounding.
I am not guaranteeing a rally here, but these are important technical changes that investors should not ignore.
As for gold itself, the big picture chart shows how I arrived at my $1,250 and possible $1,500 targets (see Chart 2). Since mid-2013, the market moved in a sideways range, albeit with big rallies and declines within.
The range itself sports upper and lower borders easing towards each other, arguably in either a descending triangle or falling wedge shape. The jargon is not important here because it does appear that an “up” phase is beginning.
Chart 2
SPDR Gold Trust
The 200-day average, as mentioned, seems to be a good first target. In a few weeks, it will likely reach the $1,250 level, where there is resistance on the chart from the June low and October high. Should it get there, it will then decide if it wants to break through the upper border of the pattern, which should also have fallen into the area to create an important price point. If the bulls remain in control, then the next area on the chart where sellers are likely to emerge is $1,500. That is where there is strong resistance from the bottom of the large 2011-2013 pattern.
Critics will rightly point out that a strong U.S. dollar is a formidable headwind for gold and all dollar-denominated commodities. However, that market is quite extended right now and reaching a ceiling of its own. Analysis will have to wait for a future column, but the greenback is not as infallible, at least in the short term, as many people think.
Again, I am not calling for a major bull market, but the signs for a significant upside move are falling into place. Investors should give gold and gold stocks a look.
0 comments:
Publicar un comentario