Three peaks and a domed house - the current correction in gold shares

The chart above was created in the middle of August!
Stacey Himes has been calling this savage downturn in goldshares as the rare chart pattern three peaks and a domed house for some time. He also gives target lows for the HUI index. It's fairly impressive stuff so far.

Here is his most recent post
Saturday, September 6, 2008

Close in time is not always close in price!
Gold and commodity markets have experienced some severe declines. We are just starting to see some posts that these bull markets may be ending. Although we are not contrarian for contrarians sake it seems likely that these musings are indeed indications of a impending sentiment low. The three peaks pattern has finally enterred the final leg of is wave to a measured move. Since we have not had a confirmed reversal we dont know if this fifth wave will extend. I could give you some potential minute wave counts. I think that would not be productive as its clear we are attempting to break down or capitulate. Momentum indicators are usually the best way to pick bottoms in a capitulation. I still stand by my prediction that 276 must be hit as a minimum. Now that the 307 area has failed I feel confident we are going to 276 and probably lower. There are several pivots that support a final low. ive mentioned the 263 area. theres another at 248 that has manifested itself from a fib expansion of the recent wave. In terms of cycle times the fnm/fre news this weekend is going to cause some fireworks monday. Its unclear whether is sell the news or not just yet. I know what I want to see, but the market will do what it wants. I will say this. If gold and silver continue the selloff next week and selloff hard then its time to buy. If they take off to the upside early next week, then we may have a bottom as well. either way we are about there in time , maybe not price. S.M. Himes

His comments on this chart formation can be found in recent posts on his blog site.
http://paintthecharts.blogspot.com/

After the current shellacking what is the bigger picture in gold?

The falls in gold and related equities will have many goldbugs questioning the wisdom of holding either. The truth is gold and goldshares are historically cheap. Sometimes it is important to stand back to get a proper perspective on where gold shares are going and how they will eventually break out of a chart pattern that goes back several decades. The first chart by James Turk is a work of art - and a keeper. The second chart produced a few years ago by the Aden sisters confirms Turk's work.

Is the tide in gold about to turn?

After a two-year correction that has sapped the strength and will of goldbugs, is the tide in gold equities about to change? The new upsurge in goldshares has been mooted for a long time and in each instance the rises proved fleeting and false, only for the correction to rumble on longer. The angst for gold and silver bugs has lasted longer than any previous correction in this bull market. It's only when the hardiest goldbugs have been tested to the nth degree that the tide turns; it changes slowly at first and then with a great gush it comes in.

Several technical commentators think that for cyclical and technical reasons we are very close to an important rise in gold equities and gold itself. Posters such as Cyclist of Gold Action on Kitco and Goldrunner, who also posts as Nelderand, think that we could see that rise between next week running into the third week of June.

Options expiry ends on Friday in New York. That has sapped the life out of gold equities. Next week will tell the tale.

Price of Gold

$887.50 should be support, if not, we could see $850 and then $770. The bounce from any of these points will be something to behold.

With UBS losing $19 billion and other banks in the same hole - nothing has changed. The fundamentals remain so I remain unperturbed. RGLD should break up strongly when this has blown over.

Key gold shares did not follow the recent rise in gold - because it was known that there would be this setback. The same happened in 2003 months before the invasion of Iraq. Gold rose and the shares would not follow. This was followed by a severe downturn in gold but the shares did not go down percentage-wise in the same way. The shares then rose and gold followed. We may be soon witnessing the turn point in which the gold and silver shares lead the metals once again - and it has been a long time coming. The turn may take place in days or at the very latest by the last week of this month. May and June should be stunning months for PMs and their equities.

Got Gold Report – Gold, Silver Continue to Confound Short Sellers

Here's an interesting report that, amongst other things, examines the reasons why juniors have been hammered over the last few months. I know that on the London's AIM several juniors' share prices have been slaughtered by redemption selling pressure by one or more hedge funds.

By Gene Arensberg
24 Feb 2008 at 05:56 PM GMT-05:00

"The vacuum of liquidity from the speculative mining and exploration stocks has been nothing short of brutally amazing over the past four months, indeed since the middle of last year. It is especially dramatic for thinly traded companies on less liquid markets such as in Canada, relative to the HUI (and the HUI hasn’t been doing all that great either compared to gold). Compared to the HUI the smaller, more speculative mining and exploration stocks have been murdered and that’s hard for some investors to take for very long given that the metals themselves have been on a tear. Compared to the metals, spec miners have been dismembered, ground up and fed to the pigs. It’s much worse than the plunge seen in 2003.

According to old-timers in the resource biz, this could possibly be one of the best buying opportunities of the Great Gold Bull in the making for those with the stomach for it, a longer time horizon and the high-risk capital to put to work ahead of the inevitable flood of liquidity back into the sector sometime in the next year or so."
http://www.resourceinvestor.com/pebble.asp?relid=40713

21st Century Gold Rush Revisited 2008

One of the better letter writers and commentators on Gold, Aubie Baltin makes the case for the coming goldrush in gold and silver with stocks.

http://www.gold-eagle.com/editorials_08/baltin012608.html

North on the HUI

Click to enlarge

North is one of the best chartists out there and he frequently posts at Goldtent and Gold Forum. He is also no mean poet! Here is is most recent chart of the HUI. It's useful to see how the bull market in unhedged goldshares has developed and where it might go this year.

Here is North's intriging post in full:

"If HUI emulates its action in 01-02, then it will hit the first blue rail in May 08, then draw back until the beginning of 09. And it will hit the highest blue rail in May of 09. That is a breathtaking scenario if it materializes."
tinyurl.com/2aoafc

The Fed cuts its main interest rate by 0.25% and the precious metals sector falls?

The Dow fell out of bed and the PM sector follows? Today was pure manipulation. TPTB could not afford to give the impression that gold and silver were about to move higher and the PM equities are still in lock step with the main market. Da Boyz who control the Dow and Nasdaq threw their toys out of their cots today because they were displeased with just a 0.25% cut in the base rate. As a result, the DOW fell almost 300 points!

Gold and silver and their related equities will climb in value despite today's shennanigans. The Fed cut rates and wanted to stop the impression that the Dollar would fall as a result. Temporary madness won out - but it cannot and will not last. In a few days, when Joe Sixpack is not looking the PM sector will do what it should have done today - and will do over the next few months!

If The Dollar Falling Is Falling Like This . . .

Gold and silver equities should shortly do something like this:

HUI…wave ii support and wave iii price objectives (by Rambus)

Rambus is one of the best chartists and posters who posts at Goldtent. With gold and its PM stocks falling over the last few days this post is one worth posting here as I believe that it shows where the precious metals complex will go VERY SOON, UP - UP - UP! He advises goldbugs "to be strong and buy the pain". Great advice, Rambus. With the banks and the Dow on the ropes and seasonal strength ready again to renew the gold sector, it's a timely message. The current washout and the monthly falls in the main markets are similar to what happened last time the gold sector shot up over several months between 2001-2002 in what was then Wave I.

-> Posted by Rambus @ 13:40 pm on November 19, 2007
We have had a good run from the August 16th bottom at 285 to the November high at 463 for a grand total of 178 points in alittle over 10 weeks. What is becoming apparent at this point is, that rally phase was our wave i up and we are now in the middle to 2/3’s done already with our wave ii down. The chart below is how I am seeing things at this point in time as everything seems to be lining up quite nicely. I think we will see either a 38% or 50% retrace of wave i up and not a 62% retrace, as a 62% retrace would put us under the top rail of our big 16 month triangle consolidation. Click on the chart to enlarge it.

We are testing the 38% retrace as we speak at 395. The old high at 401 is also a good spot to look for support. There are several chart patterns that are suggesting a move to the 50% retrace of wave i may actually be in the cards at this point. Either way we are only talking about another 15 to 20 points lower where we can then launch our wave iii of 3 of III. I can’t believe I just typed out wave iii of 3 of III. This next wave up will be the exact center of this bull market and should be at least 288 points from whichever fib retrace we bounce off of. This should be a good place to pick your spot to get on board the gold train. The sweet spot of this bull market should be close at hand IMHO. Be strong and buy the pain.
Click on the chart to enlarge it.

All the best…Rambus

Peter Brimelow's "Wary Gold Bugs See Several Soaring Scenarios"

Peter Brimlow is one of the better US financial journalists who has presented the case for the precious metals for much longer than most. In this intriging article he ponders the next few months in gold and gold shares when so many goldbugs have fallen away. The lack of a public fanfare as gold has reached historic highs is one of the most powerful reasons to suggest a much higher price for gold and silver in the coming months. Joe Sixpack may be about to come onboard the goldtrain to push prices higher as high gold prices gain wider publicity.

And what are my positions in gold and silver? I'm almost fully invested in the US and the UK after having diversified my holdings further. Only one of them, TMG, is causing me some concern and even that one may result in a better conclusion than it would appear.

I liked John Doody's point in the latest Financialsense broadcast in which he thought that investments in PM stocks in Dollar-based or Dollar linked economies would yield premium returns as their costs would be lower than in countries with stronger currencies. He also thinks that this point is not, as yet, recognised by the market.


PETER BRIMELOW
Gold's time to set price records?
Commentary: Wary gold bugs see several soaring scenarios
By Peter Brimelow, MarketWatch

NEW YORK (MarketWatch) -- Could gold be "melting up"? Some letters think so.

Friday's close in New York, $10.70 above the previous week's close at $743.10, was the highest monthly close ever. (Gold briefly cleared $800 on an intra-month basis in back in 1980). The ultra-long term $US 5 X 3 Point and Figure chart made available freely by the public-spirited The Privateer Website looks stunningly handsome.

www.the-privateer.com/chart/gold-pf.html"

And after all, gold bugs reason, just about every other commodity price has smashed through to all-time highs recently. Why not gold?
This is the point of view of James Turk in his Freemarket Gold & Money Report, which has supplied a sophisticated assessment of gold for more than 20 years. Turk writes:
"A blow-off leg in gold is looking increasingly likely once it clears $1,000. Think about this a moment. The US dollar is now trading at record lows, with no bottom in sight. Commodity prices are soaring, with wheat at over $9 per bushel and crude oil looking increasingly well supported over $80 per barrel.

Gold is rising against all the world's currencies, indicating that fiat national currencies backed by nothing but promises from over-indebted governments are becoming increasingly doubted. Britain just experienced the world's biggest bank run since the 1930s ...We should be mentally prepared for the possibility that gold exceeds $1,000 within the next few months, and then just keeps climbing to a blow-off high.

"How high? A doubling of the gold price has happened before in blow-offs like the one I am describing, so $1,500 or more is not out of the question."
Sentiment indicators don't rule this out. True, MarketVane's Bullish Consensus for gold jumped 3 points on Friday to 90%, which is the highest since May 2006 - when gold made its previous recent high. On the other hand, back then gold spent a full two weeks gamboling happily with confidence in the 90s.
Furthermore, letters with a direct commercial interest in the public's appetite for the gold story are complaining.

Bill Murphy, whose Le Metropole Café Web site depends on subscriptions, laments: "What is even more remarkable is the lack of enthusiasm over this coming historic move to the upside. The Café Sentiment Indicator fell to a 3 yesterday, as gold made a 28-year high on the COMEX, and so far is nowhere ... even TODAY thus far. I just heard from a veteran broker of a major Planet Wall Street firm who specializes in the gold shares. He said his 'shop was very quiet.'
"What amazes me is how many Café members, both paying and trial members, have dropped by the wayside over the years and continue to do so." See Web site)

Other much-cited evidence: the poor performance of the junior gold shares, the purest play on stock-market gold optimism. Neither the Amex Gold Bugs Index (HUI:HUI XAU,) indices of major gold shares have made new highs despite gold's performance. Reportedly, gold share mutual funds continue to experience redemptions.

The primary logical obstacle to a melt up is the possibility of intensified Central Bank sales. Le Metropole Café was pleased last week to see Wall Street Establishmentarian Citigroup, Inc. (C:Citigroup, Inc News, chart, profile, more acknowledging this possibility. It said: "Gold undoubtedly faced headwinds this year from resurgent central bank selling, which was clearly timed to cap the gold price."

Gold bugs, much scarred by two hard decades, worry that ballooning open interest on COMEX suggests a determined, possibly policy-motivated, seller is present. Nevertheless, this is a market to watch.

The Latest Elliot Wave article from Alf Field is worth reading

http://www.gold-eagle.com/editorials_05/field100107.html

The current downturn will mean little when one considers what is to come.

Looks as if it is shaping up for another deluge for gold stocks

I tried to sell some shares in various US goldstocks yesterday only for my automatic trading platform to fail in each execution. Prices then fell into the close. Gold and silver stocks are acting sluggishly as if this rise is being sold into in expectation of a plunge in October. The commercials are also short gold in a major way unless the latest COTS report suggests otherwise.

I'll either sell a third of the US stocks on Monday or endure the next ride down on the roller coaster and just hang on. Going into next year gold and silver stocks should be much higher from where they are now. Doing nothing may be the only option.

This Is It! by the respected Aden Sisters

This Is It!
Mary Anne & Pamela Aden
The Aden Sisters
Sep 24, 2007
Courtesy of www.adenforecast.com

All of the pieces have fallen into place.

Gold was near a 27-year high, oil was at a record high, stocks in the U.S. and globally, remained bullish, the currencies were strong and the U.S. dollar was near a record low.

The Fed then lowered the Fed Funds and Discount rates by a half percent on Tuesday, which triggered or reinforced strong breakouts in these markets, leaving no question that the major market trends are solid and strong.

The Fed saved the day. A recession is now less likely than it was a month ago, while inflation is indeed more likely. As a result, oil continues its surge and gold broke out strongly to a new bull market high.

Stocks are super strong, interest rates are on the decline, the U.S. dollar is at a record low, the Canadian dollar reached a 30 year high, the euro is at another new high, many resource and energy shares are also at new highs, and so are several gold shares. The asset boom continues (see Chart).

Gold: What's Next?

A strong C rise in the gold price is now underway. These are the strongest upmoves within gold's recurring cycle. Plus, the fact that gold has now reached a new bull market high is super bullish for gold, reinforcing that the over-six-year-old bull market is solid and well intact. With gold above its May, 2006 high (which was the last C rise peak), gold is now on its way to test the 1980 peak near $850 as its next upside target. Gold's C rise will remain super strong above $700 basis December.

Gold shares are also shooting up with gold. The XAU index is very strong above 150 and it's now above its May 06 high near 168.50. It'll be very strong if it can stay above this level.

Gold and oil are in the limelight and they've left the others in the dust. Yet silver, platinum and copper are on the rise and they are firm above $12.70, $1,290 and $3.40, respectively, and they have room to rise further.

Our strongest gold and energy shares are at new highs, while most of our natural resource shares are at new highs. This is a time to be buying new positions and holding on to the ones you have.

The best is yet to come.

Sep 24, 2007
Mary Anne & Pamela Aden
info@adenforecast.com
The Aden Forecast

Mary Anne & Pamela Aden are internationally known analysts and editors of The Aden Forecast, a market newsletter providing specific forecasts on gold, gold shares and the other major markets.

For more information, go to http://www.adenforecast.com/

"Getting Technical" by Michael Kahn

This a good article on what's driving the gold markets.

GETTING TECHNICAL
By MICHAEL KAHN

A Secret Time Bomb Made of Gold
September 12, 2007
THE VOLATILITY SEEN THIS QUARTER IN the stock and credit markets may be new to younger investors. But there is something lurking out there that can make things really dicey.

A little-known fountain of free money called the "gold carry trade" is in danger of drying up. And if it does, then markets from gold to bonds and even stocks can be in for a wild ride.

Before even explaining what the gold carry trade entails, let me first say that its demise has been forecast for nearly a decade. In researching this topic, I found articles as far back as 1998 looking for an explosion in gold prices and commensurate damage to other markets, if not the economy. In other words, this is a story that is as old as Methuselah.

But with a sinking dollar, soaring commodities, and several diverse technical conditions on the charts, the dynamics are coming together to make the end of the gold carry trade a lot closer to reality than ever before.

The gold carry trade is similar to the yen carry trade, which has been a hot topic in the markets this year. Basically, money is borrowed from one source at a low interest rate and invested elsewhere at a higher rate. As long as relevant exchange rates and asset prices remain stable, a profit is made with little effort.

Central banks are sitting on huge supplies of gold that earn them no interest and cost them money just to store securely. To earn a little revenue on these static assets, they loan their gold to banks, called buillon banks, at a ridiculously low interest rate on the order of 1%.

The banks turn around and sell the gold in the market, typically in the London bullion market, and invest the proceeds in a higher-paying asset, such as long-term Treasury bonds. If bonds pay 4.6% then the banks earn an easy 3.6%.

The problem is that if the gold price starts to rise, profits can be wiped out or turned to losses. And in today's market, a falling dollar not only boosts gold prices but it also makes Treasury bonds less attractive to foreign investors. That reduces demand and weakens prices to create a potential double-edged sword for carry traders.

The banks, of course, realize this and hedge their gold sales by buying gold futures. According to Kevin Schweitzer, senior vice president with Hudson Securities, a firm that makes markets in gold stocks, the hedge is not perfect. If central banks call in their gold loans, the banks cannot wait for contract expiration to take delivery on the gold they purchased via their futures contracts. They have to pay back their loans right away and if gold prices are stable, there is no problem for the banks going into the physical market to buy back their gold.

However, if gold starts to rise quickly, the added demand from the banks to buy gold can exacerbate the rally causing what amounts to a mad dash for the metal. The market will respond with steeply higher prices, and Schweitzer sees this pushing gold to $850 by the end of the year.

All of this is fundamental in nature so let's examine the technicals a bit more. As the chart shows, gold peaked in May 2006 in what some labeled a speculative bubble. However, rather than falling quickly as burst bubbles portend, the market moved sideways for the next 15 months (see Chart 1).
Last month, gold broke out from that range to resume its bull market, moving quickly from 670 to 721 in just eight trading days. A 7.6% move in such a short period is a wake-up call for the carry traders.

Schweitzer also points out that open interest in gold futures, which measures the current size of bets made by futures traders, is 34% lower than it was last year at the presumed speculative price peak. In other words, the speculation present today is lower than it was the last time prices went up like they are now, and Schweitzer thinks that this gives the market a lot of room to the upside. Traders who buy momentum markets -- think Nasdaq in 1999 -- have not yet piled on.

Seasonally, gold is also entering one of the stronger parts of the year. Commercial players in the gold industry, the so-called smart money, are still buying and otherwise acting as if they expect prices to continue to rise (see Getting Technical, "Gold Stocks Are Precious Again," Sept. 10). Put it all together and the technicals support higher prices, short-term corrections excepted, and that will continue to pressure the gold carry trade.

What is the price that breaks the bank, so to speak? It is hard to say. But with so many factors conspiring to keep the rally going, it does look as if the carry trade is finally about to unwind. Banks that hold big short positions in gold are going to be very vulnerable. Investors sitting on a stash of Krugerrands or Maple Leafs will be a lot happier.

Also read Getting Technical, Sector Alert:
"Gold Stocks Are Precious Again," Sept. 10, 2007.

Calling From Porec in Croatia, by the Istrian Coast

Gold markets are just treading water here. The HUI is building and marking out a pattern for a major advance. The advance will possibly take place in the last days of July reaching into mid August.

British gold shares are way off the mark. I expect those to make good gains after the US gold shares have taken off. This may allow a few sales of US goldsters to buy British ones.

No more posts on AS or A2 Literature will be made over the Summer.