More on Gold

I have been getting quite a few queries on seemingly impossible and obnoxious target of 5000 I have mentioned in previous post. I am writing this post to throw some more light on that. In my previous post when I mentioned 5000 as a probable target, but by no means I want to convey that it is going to be the most likely target for gold.  

Let us look at the give chart on gold. 

Here in the chart I have used Fibonacci retracement to find out other potential targets on gold . The first target on gold form here will be 1995 (38.2% retracement), the second target will be  2534 (50% retracement) so on and so forth. The highest possible target as per the pattern is around 4800. Now 4800 will come or not depends on lot of factors including government policy decision they make in future. Reader must be well aware that current era is the era of uncertainty and big seismic shift happening in global economy. I recently updated this article (http://beyond-boom.blogspot.com/2011/08/global-economic-downturn-crisis-of.html) which will give you an unparalleled insight into the kind of political upheaval we will see. 

Its very hard to forecast the exact time and price which gold will achieve but the long term trend in the yellow metal is up.

Let us look at the second chart for gold. In the give chart we can see that Gold made a high of 800 USD per ounce in 1970's and made a low of 250 and stayed at this level in the following two decade. In 2007 Gold moved up above 800 USD and broke a round bottom pattern. The target for this pattern is at around 1800 USD Per ounce which have been achieved today. 

Therefore it may happen that gold have made a top or it will make a top somewhere around 1800 -2000 levels. The confirmation will come only when gold will give some reversal indication. Till reversal pattern appears on charts, Gold is always open to the upside of 2000 USD per ounce. 

Let us look at the third chart of gold.We can see that gold have been increasingly making steeper trend lines in last 10 years. A downtrend in gold can only be confirmed when gold will break the trend line and move below 1500 USD.

Once Gold will signal a reversal pattern on charts the downside target for gold can be gauged form the following charts. The first retracement is at 1420 levels. The second target is at  1200 levels and the most optimistic targets are at 1015 levels. I would like to remind my reader that these are tentative targets which depends on the level form where gold makes a reversal. 

Let us look at the next chart. It shows holding of gold by ETF's. As we can see the holding chart have risen sharply but still have not gone parabolic. As per my experience I think in the termination of any trend the price movement tend to be parabolic. Since Gold is not a ordinary commodity but it is also a store of value the price of gold will go up if the money supply goes up. Therefore only price movement may not give the correct picture. Therefore I expect that when Gold will ultimately top out around 5000 levels ETF holding of gold will move up parabolic curve.

The next chart shows the US treasury gold holding relative to monetary base. since 2008 US monetary based have qudarapel  while gold have doubled in value. therefore the current ratio will still be at all time low around 10%. If history is any judge than the value of gold relative to monetary base should move up. This can happen if FED reduce its balance sheet or if the gold price goes up. Since I dont see any signs of the former happening there is a high probability that gold may move up to substantial new highs.

Just to add a note on technical analysis. In this uncertain world Technical Analysis gives you an additional tool to look at the intensity of market sentiment. Combined with macro economic analysis, understanding of market psychology and Fundamental analysis it may become potent weapon for trader and investor. I use technical analysis to gaze at major trend reversals. Moreover there is lot of subjectivity in Technical Analysis just like economics or fundamental Analysis. Reading chart is more of an art than science and depends on one's experience and learning curve.