Gold Trend Forecast for 1st Quarter of 2012

By Chris Vermeulen

Over the past five months gold has fallen sharply and is no longer headline news which it once dominated back in 2011 when it was making new highs every day. The shiny metal has been under pressure because traders and investors started to pull some money off the table to lock in gains. Gold prices had surged so fast most advanced traders knew that final high volume surge was not sustainable. But the main reason gold topped out in my opinion was because the US Dollar index had put in a bottom and started to build a base. As we all know a rising dollar typically means lower stocks and commodity prices.

I have posted some charts below covering gold in detail using multiple time frames. The weekly which is long term, daily which is the intermediate trend and the 4 hour chart which shows gold momentum and intraday action. At the very bottom I talk about the US Dollar and what is happening with that.
  
Gold Weekly Long Term Trend Analysis

The weekly chart is not the most exciting time frame to follow as you will grow old watching it. That being said it is crucial for understanding the long term trend, price and volume analysis.

Below you can see that gold's recent pullback has been a 3 wave correction, which is a normal pullback for any investment. But taking into account the rally from 2008 - 2011 I feel this pullback will have one more low put in before bottoming out. This would make for a 5 wave correction much like what happened in 2008.

 

Daily Chart of Gold Showing the Intermediate Trend

The daily chart allows us to see gold intra-week price action and use the 150 moving average which is my preferred daily moving average. As you can see we are getting a similar pullback as 2008 with gold now trading under the 150 MA.

I would like to see gold make another lower low in the next 2-3 months. If that happens I feel it complete the correction and trigger a strong multi month or multiyear rally in gold.

 

 

4 Hour Intraday Chart of Gold 

The 4 hour chart of gold allows us to see all the intraday price action which would normally not be seen with a daily chart. It also gives us enough data to build our analysis upon.

My preferred setup for gold which I feel if happens will trigger major buying in the yellow metal. If/when we get a rally in gold would also likely mean some more economic uncertainty has entered the market either from within the USA, Europe or China…

Weekly Dollar Index Long Term Analysis

The dollar has the potential to rally to the 87 - 88 level before putting in a major top. For this to happen we will need to see the Euro crumble (both currency and countries divide) in my opinion.
If you look at the weekly chart of gold and this chart of the dollar index you will notice that gold topped when the dollar bottomed. Over the past couple year's gold and the dollar have had an inverse relationship to each other.

With all kinds of crap about to hit the fan overseas I think it's very possible gold will rally with the dollar. Reason being there is way more people overseas who want to unload their euro's and with all the negative talk and doubt with the US Dollar individuals will naturally want to buy more gold.

Weekend Trend Trading Conclusion: 

In short, I expect a bumpy ride for both stocks and commodities in the first quarter of 2012. With any luck gold will pull back into my price zone shaking the majority of short term traders out just before it bottoms. And we will be positioning ourselves for a strong rally buying into their panic selling.

To just touch base on the general stock market quickly. I have a very bearish outlook for stocks. If the dollar continues to rise it is very likely the stock market will fall into a bear market. So I am VERY cautious with stock at this time.

 www.GoldAndOilGuy.com

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Gold Model Forecasts $4380 Gold Price

By Willem Weytjens

  

You've probably heard it many times: "Gold is a good hedge against inflation".

But IS it? That's the question we will try to answer in this article.
Let's have a look at a chart:

The chart above shows us the gold price (left hand scale, red line) since 1968, when the Gold Pool broke down. At that time, the gold price was no longer fixed, and was able to rise (substantially). From February 1968 to February 1980, gold rose almost 25-fold, from $35,50 per ounce to as high as $875 per ounce. From that point, gold started a multi-decade long decline towards $250 per ounce at the beginning of the 21st century. In the same time period, CPI doubled from 78 to 175,60. From then on, gold rose substantially, from about $250 to $1,920 earlier this year (x7.68), while the CPI rose from 175,60 to 226,42 (only 29%). So for that matter, it seems there isn't really a strong correlation between the gold price and the general price level.

I thus figured there had to be other forces at play that influence the price movement of Gold, and yes, I think there are… Eddy Elfenbein from Crossingwallstreet wrote an article that really intrigued me. He had found a "model" to explain the movements in the Gold price.
He said:

• The first and perhaps the most significant key takeaway is that gold isn't tied to inflation. It's tied to low real rates which are often the by-product of inflation.
• The second point is that when real rates are low, the price of gold can rise very, very rapidly.
• The third is that when real rates are high, gold can fall very, very quickly.

Special thanks goes to Jake from EconompicData, who also wrote about this topic, and who has helped me a lot with solving formulas.

So mr. Elfenbein wrote that gold isn't tied to inflation. It's tied to low real rates which are often the by-product of inflation (high nominal rates can still lead to low real rates if inflation is also high).
That's an interesting observation, as Ben Bernanke promised to keep rates at record low levels throughout 2013 in order to stimulate the economy. When nominal rates are near zero, every bit of inflation we get will lead to negative real yields, causing the gold price to rise substantially over the next two years, according to the model.

I wanted to see it myself, and I was thinking if I could improve the "model". I think I managed to do so, as my model "gold price" has a higher correlation with the gold price. With a lot of formulas in excel, I calculated the real short term rates, level of inflation, and "calculated" a model price for gold, based on the models of Jake and Eddy. I didn't calculate everything manually (I used about 2,000 combinations), but instead worked with a Macro in Excel, which makes my computer do all the work for me. It took the Macro about 1 hour to calculate every combination of 100 leverage factors and 20 deflator factors. I found out that a deflator of 2,15% and 2,20% gave the best results, with a leverage between 5.7 and 6.95, instead of the 2% Deflator and 8x leverage as Jake and Eddy found out. Based on these combinations, I was able to reproduce a "model" price for gold. The results were rather impressive to say the least. For example, the model price of gold based on a deflator of 2.15% and a leverage factor of 6.90, had a 95.52% correlation with the actual gold price:

 For those who prefer to look at logarithmic charts:

 Now, what does this all mean? Does the model have the potential to "forecast" the gold price? Maybe. It depends on the nominal short term rates, and the level of inflation. The first one is pretty easy to "guesstimate", as Bernanke promised to keep rates near zero for the next 2 years. The average annual (officially reported) rate of inflation over the last 43 years, has been 4.44%. If we assume we would see a similar rate of inflation over the next 2 years, the Gold model "forecasts" a gold price of $4,380:

To put things in perspective, please have a look at the logarithmic chart if you think the chart above looks "bubbly".

 From the beginning of this bull market, it would "only" be a 17.5-fold increase, compared to the 25-fold increase from 1968 to 1980. A similar 25-fold increase would lead to a gold price of about $6,250.

We now have another reason to believe legendary gold experts Jim Sinclair, Alf Fields and plenty of other analysts who are fully confident of a parabolic rise in the price of gold with targets of $4,500 and above.


Source :  http://www.gold-eagle.com/editorials_08/weytjens121211.html

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KOMODO : The Last Living Dinosaur On Earth

About Komodo

It has been suggested that Komodo Dragons may have been originally discovered by Chinese traders as early as the 2nd century AD. The evidence of this discovery comes from a single note on a map stating “Here be dragons” around Komodo Island.

Komodo Island is located at 8° 33′ 0″ S, 119° 27′ 0″ E and has a surface area of 390 km² and over 2000 inhabitants. This island is part of Indonesia's 17,508 archipelago, and the inhabitants are descendants of former convicts who were exiled to the island and who have mixed themselves with the Bugis from Sulawesi.

This Island is the home of Komodo Dragon (Varanus Komodoensis),which is the largest living species of lizard, growing to an average length of 2 to 3 metres (6.6 to 9.8 ft) and weighing around 70 kilograms (150 lb).
Behavior

The Komodo Dragon was formally discovered by in 1910 by a Lieutenant van Steyn van Hensbrock, a Dutchman stationed on the island during WWI. Once discovered, the dragons became an instant fascination and took on an almost mythical aura. Ultimately the Komodo Dragon received its taxonomic name, Varanus komodoensis (V. Komodoensis).

Physical Characteristics

The “Dragon” is actually a giant monitor lizard. While not a mythical creature, the Komodo Dragon is an amazing animal in its own right. Males can grow up to 10 feet and weigh up to 200 lbs. while their female counterparts can grow up to eight feet and weigh up to 150 lbs.

They are the world’s largest living lizard. Their ancestry can be traced back to 100 million years when other giants roamed the world. They have been ecologically isolated on a small group of islands and have remained on top of the food chain in their world.

They boast short, muscular legs, clay-colored scales for skins and a long, muscular tail. They use their powerful claws to fight off other dragons during the mating season. They have sixty sharp, serrated teeth that are replaced on a frequent basis.

They are fast, agile, and great swimmers. They have been known to swim from one island to another in their quest for food and mates. As juveniles they are able to climb and live in trees.

Komodos can see up to .3 miles although its hearing is very limited. Its strongest sense is smelling. It is able to smell carrion for up to five miles. It also uses chemical and scent communication with other Komodos by marking its territory.

Geographic Range and Habitat

Komodo Dragons are found in the Lesser Sunda Islands that include Rinca, Komodo, Flores, Gili, Montang, and Padar. Their total range is less than 1,000 square km. Komodo National Park makes up all islands except Flores.

Their natural habitat consists of arid volcanic islands and a barren landscape. They endure a short monsoon season that produces floods. The average temperature on Komodo Island is around 80 degrees and even early mornings are hot and dry. Dragons mostly live in the lower arid forest and savanna ecosystems.

The locals on the island call the dragon Ora and display a great respect for the giant, predatory lizard. A full grown Komodo Dragon has no qualms about attacking and eating people.

Dragons are mostly solitary animals except during breeding season. Males are territorial and will defend their territories during mating season. However, they are not territorial when it comes to food. Their territories tend to overlap when hunting and they amicably share their ranges. The only time they might come together is to share the meal of a large carcass.

They sleep in burrows at night and roam about during the day. They enjoy a simple life of sunning, roaming, eating, napping, and sleeping.

Diet

Komodo Dragons are carnivores and cannibals. They roam about searching for carrion (carcasses) or take to ambushing and hunting prey. Komodos will eat just about any type of meat they can get including wild pigs, deer, water buffalo, snakes, fish, and even their own kind. They are on the top of their food chain and have no natural predators of their own.

Their serrated edge teeth are deadly and their mouths are filled with upward of fifty different bacterial species. Once they’ve bitten their prey the fight is over. Even if the prey isn’t killed during the attack it will ultimately die from infection. The dragon will simply follow its wounded prey until it succumbs to the infection.

Reproduction and Growth

Mating season for Komodo Dragons runs from July to August. The females use the brush nest of another species to lay her eggs. She will normally lay up to 30 eggs in September. She will sit on the nest during the incubation period, but does not display any parenting behavior once the eggs hatch. The eggs hatch the following spring around April. Baby Komodo Dragons are generally around 15 inches long and weigh about 3.5 ounces.

Hatchlings live a precarious life and they tend to have a fairly high mortality rate. They are prey to other animals and even their own kind. Komodo Dragons are notorious for eating their own young. In response, hatchlings scramble to the nearest tree and remain in the trees until they’re large enough to be able to fend for themselves. Juvenile Komodo Dragons will eat insects, small lizards, eggs, birds, and whatever prey it can find in the trees.

Status

Komodo Dragons are considered an endangered species. They’re populations are diminishing due to volcanic activity of their habitat and loss of its base prey. Poaching of prey species and tourism are having an impact on their environment. There are only 3,000 to 5,000 Komodo Dragons living in the wild.

Source: http://www.thenew7wondersoftheworld.com/

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European Crisis May Still Result In Recession, Despite Debt Deal

By DAVID McHUGH and PAUL WISEMAN

FRANKFURT, Germany — Even if Europe dodges a financial meltdown, it may not be able to avoid a recession.

The deal European leaders reached last week to defuse the continent's debt crisis was thrown into turmoil Tuesday by the Greek prime minister's surprise move to call a referendum on Greece's latest rescue package. If voters reject the package, Europe could face a potentially devastating Greek default on its debt.

Stock markets plunged around the world, particularly in Europe.

Even if the debt agreement leads to a long-term solution to the crisis, the pact does nothing about other threats to Europe's economy: deep cuts by over-indebted governments, high unemployment, stingier bank lending and declining exports.

Many economists think Europe is nearing a recession that would harm the United States, China and other countries whose economies depend on the continent. The problems are illustrated by The Associated Press' latest quarterly Global Economy Tracker, which monitors data in 30 countries:

_ Four nations – Italy, Spain, Britain and Norway – reported annualized growth of less 1 percent in the April-June quarter. Economies generally must grow at least 2.5 percent a year just to keep unemployment from rising.

_ Spain had the highest unemployment among countries the AP tracked: 21.2 percent in August, which rose to 22.6 percent in September.

_Greece and Italy were buckling under the weight of government debt. In Greece, those debts equaled 161 percent of national output in the January-March quarter, second to Japan's 244 percent. Italy's government debt equaled 113 percent.

Financial markets have been spooked by fears that Greece and perhaps larger countries, like Italy, would default on their debts.

Banks would be stuck with huge losses on their government bond holdings. A panic like the one that nearly toppled the U.S. financial system in 2008 could follow.

European banks agreed last week to take a 50 percent loss on their Greek bonds. They are also to set aside more money to cushion against future losses. In addition, eurozone leaders hope to strengthen their bailout fund to keep the crisis from spreading to bigger countries.

Financial markets initially roared their approval. But fears that the debt deal will collapse or fall short of solving the crisis have triggered deep selling since late last week.

Analysts noted the paucity of details, wondered how many banks would adopt a voluntary 50 percent write-down on Greek bonds and questioned where the money for the enlarged bailout fund would come from. European leaders last week approached China for financial help.

The Greek referendum heightens the doubts.

"There is a risk that in this case the politicians may cut off funds to Greece and that the country may even leave the eurozone eventually," economist Christoph Weil wrote Tuesday. "Uncertainty looks set to surge again in financial markets."

Even without more chaos, some economists think the continent will slip into a mild recession late this year or early next, though its strongest economy, Germany, may escape a downturn.

Economic growth in the 17 countries that use the euro will slow to 0.3 percent next year from 1.6 percent this year, the Organization for Economic Cooperation and Development estimated Monday. Some European economies may stop growing altogether, the organization of wealthy nations warned.

One reason for the pessimism: Smaller countries, particularly Greece, Ireland and Portugal, are slashing spending. The bigger ones are raising taxes and also cutting spending.

Italy, Europe's No. 3 economy, is carrying out a $76 billion package of spending cuts and tax increases to try to convince bond investors it won't default on its debt. Britain has imposed an austerity program that's stalled growth.

The debt crisis has shaken the confidence of those whose spending must fuel growth. Business executives and consumers seem less likely to step up purchases for new factories or SUVs.

And the prospect of having to absorb huge losses on their bond holdings has caused banks to retrench. The European Central Bank's October lending survey showed that banks cut net credit to businesses by 16 percent in the July-September quarter. The 124 surveyed banks expected even tighter credit as the year ends.

Automaker Daimler AG said last week that it saw little prospect of significant growth in Western Europe. Its French competitor Peugeot Citroen SA said it would cut 6,000 jobs because of flat demand in Europe.

The weakness has already caused pain across the Atlantic.

Jeff Fettig, CEO of U.S. appliance maker Whirlpool, said Friday that demand is tumbling in parts of Europe. Whirlpool cut its earnings estimates and said it would lay off 5,000 in North America and Europe.

The United States exported $240 billion in goods to the European Union last year – more than twice its export total to China. U.S. companies have also sunk $2.2 trillion into long-term investments in Europe, such as factories and acquired companies. No other region comes close to drawing so much U.S. investment.

Germany has 2,200 American-owned companies. General Motors and Ford Motor Co. have divisions based there. ExxonMobil Corp., ConocoPhillips, GE, IBM, Hewlett-Packard Co., Procter & Gamble Co. and Dow Chemical Co., all generate billions in annual European sales.

Exports have accounted for 47 percent of growth since the Great Recession ended in mid-2009. That's more than twice their share after the previous three recessions.

"It is the reason Europe matters," says Steve Blitz, senior economist at ITG Investment Research.

___

Wiseman reported from Washington.

Source: http://www.huffingtonpost.com/2011/11/01/european-recession-crisis-despite-debt-deal_n_1069144.html

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How Gold & Stocks are About to Repeat the 2010 Bottom

By Chris Vermeulen

In May of 2010, immediately following the flash crash many investors started to become bearish (nervous) regarding their position in gold and equities. Once the general public became aware that the stock market could fall 10% in a matter of minutes, investors became very cautious. Suddenly protecting their capital and current positions was at the forefront of their investment process.

A couple days later the market recovered most of its value, but it became clear that investors were going to sell their long positions if the market showed signs of weakness. It was this fear which pulled the market back down to the May lows and beyond over the next couple months which caused investors to panic and sell the majority of their positions. It is this strong wave of panic selling that triggers gold and stock prices to form intermediate bottoms. Emotional retail traders always seem to buy near the top and sell at the bottom which leads to further pain.

Now, fast forward to today........

This past August we saw another selloff similar to the “Flash Crash” in May of 2010. I warned followers that gold was on the edge of topping and that stocks would take some time for form a base and bottom. Over the past couple months gold, silver, and stocks have been trying to bottom but have yet to do so.

Just a couple weeks ago we saw gold, silver, and equities make new multi month lows. This has created a very negative outlook among investors which I highlighted in red on the chart below. Since the panic selling low was formed just recently we have seen money pile back into gold and stocks (more so stocks).

This strong bounce or rally which ever you would like to call it may be the beginning stages of a major bull leg higher which could last several months. Before that could happen, I am anticipating a market pullback which is highlighted with red arrows on the chart below.

Chart of SP500, Gold and Dollar Index Looking Back 18 Months

Reasons for gold and stocks to pullback:

Stocks are overbought and generally retracements of 50% or 61% are common following large rallies.
The dollar index looks ready to bounce which typically means lower gold and stock prices.
Gold continues to hold a bearish chart pattern pointing to lower prices still.

Weekly Trend Trading Ideas
A few weeks ago I warned my followers that stocks and gold are forming a bottom and that we should be on the lookout for further confirmation signs. I also mentioned that I was not trying to pick a bottom, rather that I was looking to go long once the odds were more in my favor.

This is a potentially very large opportunity unfolding and there will be several different ways to play this. However, right now I continue to wait for more confirming indicators and for more time to pass before getting subscribers and my own money involved.

Source: http://crudeoiltrader.blogspot.com/2011/10/how-gold-stocks-are-about-to-repeat.html

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