Saturday, April 19, 2008

A Look Back at Gold

Gold dropped about $12.00 this week, while gold stocks and silver fared slightly better. In this post, I am going to reexamine the charts that I posted two weeks ago, since I believe that post explains most of what happened this week.

The first chart we have is a daily candle chart of gold:

Last month, when gold reached $1000 an ounce, I began hedging my long term precious metals investment by buying an inverse gold ETF. Shortly afterwards, gold plummeted about $100 in a matter of days. The question since that drop was whether it represented the entirety of the correction, or whether another leg down was to come.

Although I suspected another wave down was due, I also let the above chart help me decide. This is because a chart like the one above will keep you on the right side of the short term trend.

Two weeks ago, I said that one of the reasons gold was so strong was because there was a lot of scared money going into this market, and also going into the Swiss Franc, as these are considered safe haven investments.

I also mentioned that one way to determine the degree of normality in the markets was to observe a chart of the VIX. Here is an update of that chart:

As you can observe, the VIX has broken its support line and its 200 day moving average. This shows that the markets are returning to normal, at least for now, and that has given a boost to stocks, and to financials in particular. As the markets return to normal, safe haven investment become less desirable, and this is seen in an updated Swiss Franc chart:

Notice how the triangle formation has failed, and this failure took place at the very critical 1oo area.

Another dimension to this weeks stocks rally was a falling Japanese Yen. I mentioned two weeks ago that the Yen is currently overbought, near round number resistance, and is looking weak due to the bearish candle put in. Here is an update of that chart:

The Yen's failure this week certainly contributed to the Dow's 525 point gain this week. I believe money flowing into equities came out of the gold market, which I believe explains why gold dropped $27.00 yesterday.

1 comment:

The Word said...

Just for the record, another giant correct call for Danny Merkel.

Detractors beware...!

I'm a fan!

The Word