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Weekend Report

Published 13/02/2017, 03:33 pm
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Originally published by Chamber of Merchants

For the Gold Bugs amongst us:

Here is the Dow Jones Industrial Average sitting above a new record high which is 20,000+

Amazing. It shows that if enough money flows into a joint kitty, there’s no telling what numbers we’ll get next. I can say I think Dow 30,000 will be reached in half the time it took for the 20,000 market to be reached.

Chart

So how does this relate to the investment of gold?

Well.

The above chart shows what the Dow Jones Industrial average is valued at in US dollars. One contract costs $20,000 USD + now.

A recent post by Mike Maloney (Mike Ma-Lonely 2012-2014) tickled my fancy. What is the Dow Jones worth when not measured in dollars, but rather in real money, which is gold:

Chart
In 2001 one could sell 1 Dow contract which would afford you 42 ounces of gold roughly.

If you sell 1 Dow contract now, you only receive 16 ounces of gold, roughly…

That is a huge drop in purchasing power in the Dow Jones. So the value of the Dow 20,000 measure in things you can buy shows that it has lost about 2/3 of its value due to QE or money printing.

So is Dow 20,000 such a great milestone?

Measured in real things… the answer is no.

But you can make money from all things if you buy low and sell high. By stocks low, sell high. Buy gold low, sell high.

The ultimate strategy would have been to sell stocks (non gold) in 2001 and buy gold in 2001, sell gold in 2011 and buy stocks again. Once the above chart starts turning down, it would be safe to say that Gold will have it’s next trend. It’s all about buying one, then the other depending on the low and the high.

I have colleagues telling me they made a lot of money in real estate and that it is the only real investment.

My question is “When?”

When was it the only way to make money? Was it from 2001 to 2011? R/E did rally but since then real estate has been losing value. So has gold in dollar terms.

So it’s important to remember that all things have cycles, whether we like it or not.

If I hold forever, then I will be right a few times every decade. I’ll be wrong every other time.

Therefore, a Merchant moves through commodities and desirable assets depending on their cycles, be it real estate, wheat, stocks, gold, silver, corn, sugar, businesses or bonds. If we realise that all things go up and down, then we will be riding the elevator to a higher floor with each move.

Personally I do like liquid markets which allow me to enter and exit at leisure instead of hiring a salesperson to sell it for me. That’s a thought that stuck with me from an interview I listened to with Siam Kidd.

Moving on…

Vision

My passion and vision is to share a better way of thinking so that we may trade better. I appreciate everyone’s comments in the last post I did. Whether the comments were critical or praising, I do appreciate them all.

What I do see, is that there is a lot of emotion going around. That’s good because it spurs conversation. However, emotion is not good for trading. Emotion, excitement, greed, fear and disappointment, among others are the emotional poison that turn “would be good traders” ultimately into trading failures.

I urge you to review marrying your stock.

Gold

Gold is at a deciding point. It needs to maintain this level or higher to ensure it doesn’t have another leg down. Below is the weekly ribbon chart:

Chart

The weekly cloud balance chart indicates that major resistance is at $1250, so closing a week above $1250 would be very bullish. However, if gold hits above $1250, but closes below $1250 by the end of the week, it would indicate that $1200 support zone may be tested.

Chart

Let’s look at the daily Gold Cloud Chart. The daily chart indicates that gold has tested resistance and failed at $1240. Next support is at $1212 USD:Chart

However…in the last 2 years this has happened about 5 times. 3 fails and 2 successes…So it really is a 50/50 probability trade… unless we have a financial crisis or similar to push gold higher directly without any pull back. Additionally the tone is still bearish on gold until the cloud becomes green (which may happen within a few days if gold continues to rally through resistance):

Chart

Perhaps Trump, tweeting his unfiltered thoughts, represents enough of a crisis to create sufficient uncertainty in the market.

We also have European elections coming up and the future of the EU.

(Keep in mind that 2016 taught us that Central Banks will not tolerate safehaven asset buying when election results etc pose a threat. Brexit and Trexit both caused gold to rocket, however, the gains were unsustainable once the money printing mafioso stabilised their respective markets within days and hours.

So let us agree that we’ll need to look at the dollar/euro/yen/Australian/GBP and bond yields to see how close or far they are from their support and resistance zones and where momentum is likely to take them. This would determine largely the direction of gold in lieu of any major economic concerns/disasters.

I’ll only look at the yen and euro… The other currencies and yields are not as pressing for me at this stage. I recommend you research them nonetheless in a similar fashion.

Euro

Chart

Failure to hold support on the weekly. High probability of falling further (bearish for gold).

Daily euro: failure to hold onto the cloud. Support is at 1.06 (slightly higher) (bearish for gold)

Chart

Yen

Weekly: Bounced off support. A continued bounce is bearish for gold.

Chart

Daily Yen:

Yen failed to hold onto support…bullish for gold.

But trading above 113.50 on the USD/JPY should see a pull back in gold and silver.

Chart

Keep your eye on the yen and euro. (More yen than euro I’d say.)

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