Clive Maund
gold, silver, & oil shares
Is GOLD at a BLOWOFF TOP?...
originally published November 26th, 2009Yesterday gold went from being extremely overbought to super-extremely overbought, and history shows that when something reaches the kind of extremes that we are now seeing in gold, there is usually a sudden development that sends it into reverse. We can see how gold has pushed way into critically overbought territory on our year-to-date chart, as revealed by its RSI indicator at the top of the chart, which is showing that the need for reaction, or at least a period of consolidation, is urgent. The MACD indicator at the bottom of this chart is also arriving at an extreme reading pointing to an imminent end to the advance, at least for the short-term. Otherwise this chart looks exceptionally bullish, so after gold has taken time to digest recent gains, the upward trajectory should resume, BARRING A SECOND BROAD MARKET CRASH PHASE.
Thus it is interesting to observe that even though the dollar dropped heavily yesterday it DID NOT break down from its contracting downtrend - so an upside breakout from this potentially bullish wedge pattern remains a possibility. While fundamentally it may seem impossible for the dollar to rally significantly soon, the circumstances in which it would do so would be a rerun of what happened last year - i.e. a credit/liquidity crisis in which market players become spooked again and buy dollars with which to flee into the bolthole of short-expiry Treasuries. We have repeatedly highlighted this risk in recent articles. Given the rampant speculation that has been fuelled this year by the gargantuan dollar carry trade, which has ballooned on the back of negative real interest rates in the US, a panic of this kind would rapidly get out of control and lead to a dramatic short covering spike in the US dollar and a horrifying meltdown across the commodity markets and stockmarkets. This is why we have been shorting Canadian and US bank stocks in the recent past as a means of protection.
We MAY have seen the initial catalyst for a "crash phase 2" as Asian and European markets have just dropped heavily on the news of Dubai attempting to reschedule its debt, which also caused Credit Default Swaps to soar and bonds to rally. US markets are of course closed for Thanksgiving today, so hopefully US subscribers will be relaxing with family today and feasting on Turkey etc and won't read this until tomorrow. However if you have switched on after a large lunch and just read this, make sure you have the indigestion tablets handy.
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The above represents the opinion and analysis of Mr Maund, based on data available to him, at the time of writing. Mr Maund's opinions are his own, and are not a recommendation or an offer to buy or sell securities.
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