Gold Is Probably About to Put on a Show
September 2nd, 2009WARNING: This is not a recommendation to buy, sell or hold any financial instrument.
I’m not able to make a high confidence call on which way gold is going to go, but I think it’s about to make a strong move. If I was forced to guess, I’d say that it will break higher, which means the USDX will need to take another leg down below 77.49. The dollar is rangebound and the (weekly) Bollinger bands are starting to compress. With the USDX Bollinger bands squeezing like that, along with the triangle on gold reaching the end of the line: Something is probably about to give.
Spot gold, weekly interval
If gold does break higher, the $1032 resistance looms overhead. A move above $1032 could see it go sharply higher, as that would be THE BIG, BIGGY breakout. Of course, there would probably be some emergency (with system level implications) accompanying a move like that. (Take your pick of what it might be. Maybe the flu nonsense, maybe something else.) Gold is not just going to take a leisurely stroll over $1032 on no news. A wheel is going to have to fall off the apple cart. Something big is going to have to happen for $1032 to be taken out to the upside.
A break below the lower trend line would blow up this triangle formation and set the stage for a big move down… But it’s going into northern hemisphere Fall, when gold usually rallies… But then again, commercial traders are very short…
Again, this is an extremely tough call. It’s very blurry. I’d give it a 55% chance of breaking up and out of the triangle and a 51% chance of breaking above $1032 this Fall. The USDX looks like shit on a stick and if that thing can’t rally, it’s about to lean over hard. If that happens, gold longs should be aware that the all time low on the USDX is 70.79. Plan to hedge/pare down/sell out/diversify your long gold positions as necessary going into the low 70s on USDX. Personally, I won’t be selling one gram of my gold (because I use it as a hedge against cash).
Around 70.79, two doors emerge: Behind Door #1: The dollar will stage a massive rally/dead cat bounce/short squeeze from Hell. (Don’t ask me how this would happen.) Behind Door #2: A wildcard event; a system transformation. System transformation is lingo from International Relations. It means paradigm change; a break from past normative assumptions about the system and the actors within it. New rules.
There’s nothing but air under 70.79 and I doubt that the Them will just let the rocket sled of doom hit the wall at a thousand miles per hour. They’ll try some kind of nonsense, a New and Improved Global Confetti Currency, or maybe fewer national confetti currencies. The Amero, perhaps. Something of this nature.
But that’s getting way ahead of events. Let’s see if the dollar can hold above 77.49 in the near term, or not.
