Gold Isn't Being Manipulated, It's in a Normal D-Wave Decline
Ignore the conspiracy theorists: Gold's correction is to be expected in a secular bull market, especially with the US dollar rallying.
A D-Wave decline is a normal, regression to the mean, profit-taking event that occurs when gold gets too stretched above the mean. It is not a takedown by an anti-gold cartel. Anyone with a modicum of common sense can look at the long-term chart of gold and tell that this is not a manipulated market. This is just a normal secular bull market, and it is acting exactly like a normal bull market acts.
Click to enlarge
Folks, these conspiracy theories are now bordering on the insane. I even heard the other day someone blame margin increases for the drop in gold. I guess they completely forgot that we've already had two margin increases in the last two months that had virtually no effect on gold.
Click to enlarge
Every bull market in history has its share of con men and scam artists. Think Bernie Madoff, Enron, WorldCom, etc. The gold manipulation nonsense is just one of the many scams that are going to hitch a ride on this bull. Actually it's one of the oldest scams in the book. You find a bull market, make a one-way bet on rising prices, tout these "to the moon" prices to suck in subscribers lured by the reward of gigantic financial gains, and then blame an invisible cartel every time a correction occurs that you don't foresee. It's a great way of not having to take responsibility when subscribers get caught in a normal corrective decline.
Needless to say I don't play those kinds of games. I try to get subscribers out ahead of intermediate declines. Yes, I'm usually a little early. I have the same problem with tops that every other human being in the world has. They are virtually impossible to call in real time.
Actually there is a fundamental reason for a D-Wave decline besides just a normal regression to the mean, profit-taking event. The dollar has now moved into the aggressive stage of the rally out of the three-year cycle low. Deflation is starting to take hold in the world again. With deflation, defaulting debt collapses the money supply. There is a growing shortage of dollars in the world. That's the reason why the dollar index is rocketing higher. As the value of the dollar rises during this deflation it takes fewer and fewer of them to buy an ounce of gold. You can see this same process unfolded as the dollar rallied out of the 2008 three-year cycle low.
Click to enlarge
On a much shorter time scale, gold is now in the timing band for a daily cycle low. My best guess is that sometime over the next one to two weeks gold will move down to tag the 200-day moving average. That will trigger short covering and a very convincing snapback rally. However, it's still too early for an intermediate degree bottom. There should be one more daily cycle down into November before the D-Wave puts in its final bottom.
Click to enlarge
I suspect the next daily cycle is going to be a volatile nightmare that will chew up bulls and bears alike before a final plunge down below the 200-day moving average somewhere between $1,300-$1,400. As all D-Wave declines have retraced at least 50% to 60% of the previous C-wave advance that would be a minimum target for the November bottom. At that point we should see a very powerful A-wave advance triggered by the extreme oversold conditions generated at the D-Wave bottom.
Editor's Note: Toby Connor is the author of Gold Scents, a financial blog with a special emphasis on the gold secular bull market.
The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.
Copyright 2011 Minyanville Media, Inc. All Rights Reserved.
Daily Recap Newsletter