UPDATED TECHNICAL ANALYSIS
While we are all enjoying this gold bull run, I thought I would take a look at a few coincident indicators to give us some idea of the long term potential of the bull. Two indicators that I feel are relevant are the U.S. Dollar Index (US) and the Commodity Research Bureau index (CRBI), about which I have written previously and my comments relating to CRBI are much the same as previous comments I have posted. Also, since we often get caught up in the near term actions, I did my analysis using monthly charts to get a long term perspective.
With regard to the CRBI the monthly chart is very instructive. In early to mid 1999, the index made an important bottom in the 180 area. It then rallied into late 2000 and a made a top at 234. From there it dropped to the next important bottom in late 2002 again in the 180 area. The market rallied to its recent 2003 high in the 250 area. I am sorry that I do not have the ability to post the charts I used for this analysis. You can get an idea of what I mean from the following chart.
bigcharts.marketwatch.com
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Since the chart does not show the 1999 bottom but starts shortly after it you will need to use your imagination, but this is one of the best double bottom formations I have ever seen. It is symmetrical, the bottoms are almost at the identical spot. Many times we read about double bottoms when they have not completed their technical requirements. A true double bottom does not occur until the high between the bottoms is exceeded. This high on the chart above occurred around 234 (middle high) and it was not until this price was exceeded from the second bottom low in Nov of 02 that the double bottom was confirmed. After the breakout we have had the usual pullback, which is taking some time, but remember this is a monthly chart and so, we are thinking longer term. Double bottoms in my experience are very reliable in measuring moves. To calculate the length of the move we would subtract the lows at 180 from the middle high at 234 (234 – 190 = 44). We then add the difference of 44 to the middle high (234+44 = 278). So the CRBI projects to 278, almost 100 points from here. Interestingly the all time high for the index was around 263. If that is exceeded we would be in unknown territory for the index. On a short term basis the CRBI has just broken out of a triangle formation with a projected target of 247 which would equal its recent high.
Where will the price of gold be if the CRBI moves from its current price of 237 to its projected high of 278, which would translate to an 18% increase from current prices? Moreover what is portended for the price of gold if the CRBI makes a new high?
The next index that I looked at in detail is the USD index. Sorry can’t find a chart for this. It made a double top in the 112 area in mid 2001 to early 2002. That projected to a price of 104. That price was hit and then the dollar rallied to form the right shoulder of a head an shoulders top with a target price of 93 which target was reached on the recent break. Here is where it gets interesting , the current rally is forming a second right shoulder in the head and shoulders top and IT PROJECTS THAT THE DOLLAR WILL FALL TO 70. Where will gold be if the dollar falls to 70?
Next I looked at the monthly chart of the HUI. See chart.
bigcharts.marketwatch.com
The HUI clearly broke out of a triangle at about 160 recently. If you draw an uptrend line from the 2002 lows below 100 and another line along the highs at 160 you can see the triangle to which I refer. The low is at 92 and the high is at 160. The break out is at 160, so we had 68 to the breakout price of 160 for a projected high of 228. Where will gold be if the HUI trades at 228?
I did look at the long term gold chart and right now it suggests that if gold can trade over 375 that based on the triangle formation that has been the subject of several posts on this thread gold would then give us a target of 430.
Disclaimer. I am bigtime long gold. These are long term charts and accordingly the targets are long term. There will be many corrections along the way to these projections (assuming they are correct). I would be surprised if we don’t see one of those in the next two weeks. On the other hand, if you review my past posts, you will notice that I have been shocked before. :)
Little joe |
