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Going for Gold


Rush to devalue currency makes yellow metal shine.


Following up on my gradual shift toward macro positions, gold is the most intriguing setup I see right now. My thesis here is rather simple:

  • Governments are in the early -- stealth, if you will -- phase of what will eventually be recognized as a full-blown race to competitively devalue their currencies. Every government will deny that, of course, instead accusing others of such behavior;

  • I could be very wrong on this (just to state the obvious), but I am quite convinced that that the disparate fiscal and budgetary policies of euro-based countries, combined with the current economic/financial meltdown, will result in European countries reverting back to individual country currencies, which they can better "control" to respond to domestic problems. If this comes to pass, cash will indeed turn to trash the world around;

  • The notion that the world will backstop the US deficits ad infinitum because we are still the pre-eminent economic and military power in the world will be severely tested; that challenge alone will create unprecedented skepticism toward the dollar and all fiat currencies.

The scenario I describe above, if it comes to pass, will be a long-term process. As it unfolds, and before gold may respond to these events in a sustained way, its price could swing up or down meaningfully, so picking favorable entry spots and sticking to stop losses is critical to make sure that one has the capital to participate in the meat of the move when it gets going.

Based on some rather straightforward indicators and patterns, which you can see below,
the $830-$800 range looks like a decent area to start putting on positions.

Click to enlarge

The trendlines you see are converging and there should be a resolution either way fairly soon. If the resistance line is taken out, my sense is that the run-up to the 930 should be very swift. If gold loses support around $800, the risk is decent relative to the reward.

I have also spent a fair amount of time trying to discern the message from various DeMark indicators. This is a new line of analysis for me, so I don't feel comfortable yet sharing the details of my read - I wouldn't want to share bad info with the Minyanship.

But on a very basic level, gold registered a "Perfected Buy Setup" 2 days ago on the daily chart; risk from that signal is $785. There's additional support around $814 as well.

On a weekly basis, the setups are inconclusive, but there is support around $800 as well. I'll defer to Professor Depew for more color on DeMark items.

I am using the $800-$830 area to get long futures.

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No positions in stocks mentioned.
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