Gold – Uptrends Hold
By Louise Yamada Technical Research Advisors, LLC ("LYA")
October 7 (King World News) - One might wish for nerves of steel to have watched Gold spot price (GOLDS-1,614.40) retreat as it did in two days, from roughly 1,800 to 1,600 (1,532 intraday), for about a 20% decline (see Figure 48)!! While we anticipated the
need for a rest, given the accelerated advance to 1,900, the sudden steep decline experienced was swift and unsetting (in retrospect partly due to the margin increases).
The short-term 2011 uptrend intersects near 1,600 which has now been regained, and could provide a good floor for consolidation. The 50% Fibonacci retracement level noted last month still rests at 1,561, with the 2008 weekly uptrend at 1,480, near the 1,475 low of early 2011.
From a technical perspective, strong uptrends remain in place thus far for Gold. We can note that the current pullback following an extensive gain is within the framework of previous experiences: The 2006 advance of 74% resulted in a 22% decline; the 2007 advance of 59% resulted in a 34% decline and the current advance of 96% has thus far retreated 20%; so there is precedent for the relationships.
Consolidation at current levels would be the most desirable outcome.
Gold Versus the U.S. Dollar
We would be negligent if we didn’t readdress the historical relationship of Gold versus the U.S. dollar.
Historically,
there has been a rule of thumb that Gold and the U.S. dollar tend to carry an inverse relationship to one another. For the most part, since 1996, that relationship appears to have held, with few short-lived exceptions (see Figure 49) including that which occurred from 2005 into early 2006, and in late 2009, as the U.S. dollar and Gold both rose simultaneously for a short time. These brief events should be considered anomalies, as perhaps should the recent 2011 rise in Gold against a somewhat flat, rather than declining, dollar.
If we go back a bit further into history toward the 1970s, one can see that there are periods during which the inverse correlation has not necessarily held, as in 1988-1992 for example, and in the late 1970s into 1980 (when Gold rose against a rather flat dollar). During the short-lived 2005-2006 event, we projected that any resumption of the inverse relationship would undoubtedly resolve in favor of the strong Gold uptrend in force. We felt Gold might be taking on a bull market of its own, irrespective of the dollar (or in addition to it) and was also rising against some other major currencies (and has continued to do so), as fiat money becomes more of a concern.
Silver
One might look back to the 2008 period again and note that following a 93% advance in 2007-2008, that price took two severe drops, an initial one in early 2008 and a more extended one in the second half of 2008, for an overall decline of 58%. Thus far, the decline from the high is 47%, following the extended 170% advance from 2010 into 2011. There could be further profit-taking, notwithstanding interim rallies. Initial resistance now lies in the 33-37 range.
