Heinz on Gold
Date: Wed Mar 31 2004 12:50
trotsky (pm stocks) ID#377387:
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this appears to be the 5th or 6th distribution day in a row. iow, there's a danger that the PoG will double-top here - actually a realistic expectation in view of the latest CoT report.
that said, there are also arguments for hanging on. for one thing, the picture is not uniform. there is buying in selected issues ( note that this has nothing to do with whether price is up or down on a given day ) , and the CoT report is not necessarily indicative of an imminent sell-off, especially if the last high is bested on a closing basis. it largely depends on how strong the hands holding the long position are. for instance, when the PoG traded around 365-370, they loaded up on some 35,000 additional contracts and prices began to move up after they had done so. i'm pretty sure many of the more technically oriented commodity funds are eyeing the fibo targets in the 450-460 range.
unfortunately that doesn't mean the pm stocks will make new highs as well ( i.e., the indices - individual issues might ) . in the secular 1970s bull market, the last leg of the run-up to the late 1974 high in the PoG was basically ignored by the pm stocks. PoG increased by 25% in that leg, and the pm stocks made a lower high ( bearish divergence ) , which presaged the subsequent violent correction ( the correction actually took the form of a cyclical bear within the secular bull and the sector got clobbered ) .
in that sense, new highs in the gold contract not confirmed by new highs in the XAU/HUI would be highly suspect. even then however things aren't so clear-cut. for instance, in '79, a series of political events ( the Iran crisis, and shortly thereafter the USSR's invasion of Afghanistan ) transformed the gold contract into a run-away, bubble market. at that stage the rare event of the pm stocks catching up with the PoG kicked in ( instead of leading it as they normally do ) . interestingly the culimination of the geopolitical problems coincided roughly with the end of the inflationary K-summer in 1980. note btw. that one can't really construct a trading strategy based on unknowable future geopolitical developments...also, a lesson of the '79 bubble is that when geopolitics become a driver of the PoG, it is best to sell the rally. |
