The SPDR Gold Trust Sets a Double Bottom.
While the TSX Venture continues to toil below 1200, it is clearly building support and is primed for a move higher as we approach the fall. With the US Presidential Election just three months away, politicians and central bankers in the Western World are going to do whatever they can to maintain a positive and calm economic environment.
Mario Draghi, President of the European Central Bank, has pledged to do ‘whatever it takes.’ These words will not be seen as ‘empty’ for much longer. Italy and Spain will soon be knocking at the ECB‘s door; threatening civil unrest and insolvency.
The ECB will act – most likely within 30 days. Just like the Federal Reserve, the ECB is out of options and will print money to aide dismal growth and insolvent countries.
Since July of last year the ISI (International Statistic Institute) has reported that 228 stimulative monetary and fiscal policy moves have been initiated across several countries, including the Philippines, China, France, and Colombia.
Needless to say, most of Europe and America fall into this category as well. This level of stimulation (or manipulation) for many economies of the world, is unprecedented.
What many fail to realize (or simply choose to ignore), is the damage these kinds of inflationary policies will have on global currencies. Deflationary forces have been so strong throughout much of the world that inflation has been slow to take over, but it is coming.
In June and July (of this year) there were nearly 70 stimulus moves by nations around the world – the most in a two month period since the world began this massive trend of monetary easing.
Gold is beginning to react to the global monetary debasement which is occurring. Our team rarely uses technical analysis in our weekend reports, but we felt it worthwhile to review the GLD (SPDR Gold Trust - the largest gold exchange-traded product) as it has put in a ‘double bottom’.
We believe the GLD will be heading higher in the near-term. Furthermore, as gold continues to rise, it should have a positive impact on all gold companies, beginning with the majors.
The GLD has been establishing a support level for almost three months dating back to the $148 low it hit on May 16, 2012. Before we analyze the GLD chart of recent years, we felt it helpful to show a simple, ‘double bottom‘ chart courtesy of Investopedia.
A double bottom usually implies a completion in the consolidation pattern and renewed movement to the upward trend. It is widely believed by analysts that the advance off of the first bottom should be in the 10-20% neighbourhood.
It is also widely believed that the second bottom should form within 3-4% of the previous low, and volume on the ensuing advance should increase. The second bottom achieved on May 16, 2012 was less than 1% off the previous low from December 2011.
Not coincidentally, it bottomed at nearly the identical price. GLD volumehas been increasing this week and has confirmed to our team that gold is now back in its uptrend.
This is a significant double bottom and although it took almost a year of consolidation, gold is ready to advance further into September and we believe this to be bullish for the gold equities market.
1 year chart for GLD:
Chart courtesy of Google Finance
Notice the two bottoms next to the red arrows. The GLD hit $148 on December 29, 2011 and recently hit $148 on May 16, 2012. This is as clear a double bottom as you can get. The consolidation pattern can be confirmed by taking a look back at the past 7 years.
GLD Chart – Since Inception:
Chart courtesy of quotemedia.com
One can clearly identify 3 similar parabolic rises followed by lengthy consolidation periods ranging from 4 months to our most recent, which has spanned almost a year.
Each rise has been more significant than the last, with the consolidation periods increasing in length as well. It is interesting to note that, like the GLD, theTSX Venture has found itself in the longest bear market of its short history.
Although this is not entirely due to gold’s lacklustre performance over the past 12 months, it has definitely been a factor.
Our team expects this historical trend in gold to continue. Its next rise is set to follow this most recent double bottom and could begin within the next month. If this is the case, new highs in gold could very realistically be hit within 6 months.
However, remain cautious as it may take longer than what many analysts are predicting. Although the GLD slowly increased from the beginning of 2009 until eventually reaching its all-time high of $185.85 on September 6, 2011, it was a long steady rise with maximum profits only being attained by patient investors.
Gold will continue to climb a wall of worry amidst record monetary debasement from central banks.
“Patience is bitter, but its fruit is sweet.”
All the best with your investments,
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