THE MICIK MARKET LETTER
Gold Update
Alan Micik
Posted Aug 1, 2011
Conclusion: An Imminent Gold Takedown Will NOT Likely Be a Pullback
First, these are the recent headlines for "contrarians," and they likely represent BIG TIME warnings:
WEEKEND INVESTOR July 23, 2011
Why Gold Won't Soon Crash
-WSJ
July 30, 2011
Gold Hits Record as Investors Take Shelter
-WSJ
Commodities Corner July 30, 2011
Don't Bet on a Plunge in Gold
-BARRON'S
Contrarily, these headlines represent “denial,” and the “denial” factor usually precedes extreme market movements in any market. At a minimum, an investor should now be cautious on gold.
“Takedowns” are not unique to gold or silver, they can occur in any market. Whenever market positions become extremely one-sided by the majority, a “takedown” can happen - everyone is on the same side of the boat. The market “sniffs” that out and reverses. Markets are markets, and that is what they do. A contrary view can provide the timely clue on the over-owned market, but its weakness is that it is entirely subjective.
So, as an ornery contrarian, the “contraries” conclusion is very bearish. The fundamentals for owning gold have never been better (Do a web search for the articles), but it is now obvious to all. “If it is that obvious, it’s obviously wrong (Joe Granville).”
Second, our technical and proprietary work (such as our “M” Cycle), projects a gold high in this timeframe, and indeed, spot gold hit its projected triangle measurement on Friday. Additionally, Fibonacci “time clusters” now exist for a potential peak.
The “M” cycle targeted the week of 7/18 for a possible high in GDX, and for now, that “M” projection has pulled GDX down by -6%, while gold is up +1% from that week's close. The action in the GDX vs. gold may be a warning on gold. In the past, a drop of that magnitude by GDX has a high correlation to a forthcoming drop in gold.
Conclusions:
First, my view is that gold has topped right now, or will within 2 days to 2 weeks, regardless of the news. A “crash risk” now exists based on the subjective “contraries” IF correct. That’s a mighty big “if.”
Second, a “Stop” may be ineffective… gold may gap down, with no escape, except at much lower prices. During “takedowns,” no bull is spared. Gold has done exactly that many times in the past. The current low volatility can instantly reverse.
Third, I have no idea why gold might crater. We’ll find out later about the “why,” as the “whys” are almost always impossible to accurately predict.
Fourth, the only reasonable approach is to hedge via the purchase of 1 GLD Put for each 10 ozs. of gold one owns. Your advisor can give you details, but <$1300 is possible in a “crash” environment, and would be a normal minimum retracement.
Fifth, do not sell your gold, hedge it via Puts. Do not buy inverse ETFs against gold.
Sixth, recognize that the majority are now “buyers on dips” in gold. This has been a successful strategy for 10 years. This offers the alternate possibility of an orderly decline with no “crash,” but a more drawn out downward move.
Finally, the question is where/when would the “crash risk” abate?
If the “M” Cycle and the “contraries” have it wrong, and they may, gold will go parabolic right now. Simply draw a basic trend-line from the July low which is now >45 degrees. If it doesn’t break in the next 2 weeks, gold will be in the parabolic mode, and the “crash risk” may be avoided. Further, watch for any movement below 158.29 in GLD.
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Jul 31, 2011
Al Micik
email: atmmail@sbcglobal.net
The Micik Market Letter uses proprietary indicators combined with technical analysis, and contrary opinion. This letter is published when low-risk market opportunities are identified for the investor and/or the trader. Unlike other market reports, we do not have regular “publication dates,” as the markets create the dates of action, and thus the communication to our subscribers. This is a new 2011 publication, but the editor has 40+ years of market experience.
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