A Response to Mike Swanson's Latest Post about Gold.
Gold stocks roll over! Where will gold (NYSEARCA: GLD) and gold stocks (NYSEARA: GDX) bottom now? - Mike Swanson (12/29/11)I think Mike is WAY TOO BEARISH!!!!
posted Dec 29 '11 by clete
Gold has barely even come down to its major support level and he's already talking about the $1300's!
How about we wait to see if the support level between 1530 & 1550 holds or not before talking about a 30+% correction in the price of gold.
I got stopped out of gold by yesterday's drop but I'm not nearly as bearish as Mike. In fact, I intend to buy some SLV options as early as tomorrow for what will likely be a short term trade (a few weeks maybe).
The most bearish thing on the charts for gold and silver both is the fact that they are trading below their 200 day moving averages. But what you have to remember is that its not that unusual to trade below the 200ma in a bull market when you're going through a correction off of really large moves like what we saw earlier this year. Nevertheless, being below these averages means that they will act as resistance until we get a solid break back above them again and so caution is warranted, which means I'd likely trade out of any gold or silver position once it rallied back up to its 200ma.
Another thing to look at is the volume. Notice how the volume steadily rose through the upswing we had in the first quarter (in silver particularly) and how since the high in April, the volume has been getting progressively lighter as the price has dropped. That says to me that there is not a lot of longer term momentum to the down side, not enough to break these long term support levels. Now, having said that, if some regulatory agency decides to change the margin rules (again) and artificially creates a break of these levels then the momentum picture could change very rapidly, but baring some governmental of other big money manipulation, everything is saying to me that its time to at least begin considering buying into this weakness, especially on silver but on gold as well. As close as we are to these long term support levels, I can't imagine how you could hope for a lower risk entry point than where we are right now.
And none of all that I just said even touches the mega strong fundamentals of the gold and silver markets. One thing I do agree with Mike about is the Euro Zone crisis putting downward pressure on the price of the metals and other commodities. That's simply because the lower the Euro goes, the higher the Dollar goes and since gold and silver and oil and gasoline and natural gas and practically every other commodity you can think of is priced, world wide, in U.S. Dollars the higher the dollar goes, the lower the price of the commodities go. But regardless of that, there just isn't any way to resolve the Euro Zone problem that isn't VERY bullish for both gold and silver. No matter what they do its going to drive the price of gold through the roof. They basically have the choice of debasing their currency further or allowing whole economies to fail and collapse. Either way, gold and silver both go to the moon.