Gold bulls have now endured 14 months of consolidation & distrubition and many are now throwing in the towel. But, should they? Is the great gold & silver bull dead? Have we already seen the highs for this cycle? Or, are gold and silver merely in a long, drawn out consolidation phase?
For answers you need only look to the Euro. The Euro is now among the strongest of global currencies. So, let’s set the bar high and take a look at gold vs. the Euro.
Here’s the chart that holds many answers:
Given the recent dumping of gold onto the market by Central Banks, gold is showing amazing resiliency. We’re still riding on the 200 dma and as noted in “red” – and every penetration below the 200 dma has led to an immediate influx of strong buying and a “V-Rally.”
As traders we have two plays here. The first is based on value. Add to positions and buy gold on any dip below the 200 dma – just set stops 5-6% below the 200 dma.
The second trade, a safer play – is to add to positions on any momentum breakout above the blue-dotted trendline, which I think is imminent.
All the fundamentals of the gold bull remain intact. We are witnessing an unprecedented increase in global money supply. Derivatives are growing exponentially and we are seeing the smartest of smart money like Sam Zell and the Blackstone Group – cashing out. The U.S. used a credit and debt bubble to create an asset bubble in housing, and presently in U.S. equities. With cracks developing in subprime and mortgage backed securities, we’ve seen the warning signals in the derivatives market. It will be when, not if – when the meltdown in derivatives becomes a once-in-twenty year rogue wave event. Be prepared, stay the course, buy gold on any and all dips at and below the Gold:Euro 200 dma trendline and get ready for the imminent breakout back about the trendline. The U.S. Dollar is on life-support and Central Banks are doing their very best to keep the “yellow canary” in the coal mine silent.
They don’t call patience a virtue for nothing. Stay the course and be patient. When, not if… gold and silver will re-launch for part II of this generational bull market.