MoundReport.com's Monthly
Gold Report
Gold's Pending Collapse
James Mound
JMTG's Head Analyst
Apr 4, 2005
My gold customers must be quite
upset with me at the moment. I have been a gold bull for over
two years, but recently the merging of short, intermediate and
long term technical views have indicated a large increase in
the potential for a bear break in gold. Moreover, the dollar
supported out at a critical fundamental and technical price point
and appears prime to correct in the near term. With the upcoming
Employment Report this Friday one must look at this as a potential
catalyst to determine the near term trend in the dollar and in
turn metals. I cannot help but be a metals bear and owe my readers
what I always provide - an honest view. Gold will be well below
$400 by mid-summer and here's why:
THE US DOLLAR
Because gold is priced in US
dollars, and because the US dollar is the focal point of the
economic trend shift on a global level, we have recently witnessed
an impressive run in metals as the dollar has retraced 33% in
less than 3 years. But the trend in the dollar has changed. We
are in the midst of a rebound in the US dollar - perhaps to par
if not higher. Just look back to my comments back in late November.
The signs were all over the place - even then.
To recap November's article,
I called for a currency intervention of epic proportions over
an extended period of time from multiple parties. In 1995, backed
by powerful statements from Mr. Rubin and US government bigwigs,
the US declared a strong dollar policy that set in motion a 7
year bull run from 80 to 120 on the index. In less than 3 years
we have eliminated the entire move as the US tries to counter
balance numerous economic worries by increasing our export abilities.
Over this time we have seen gold go from relative modern day
lows to break historical price levels as we cleared $400 and
then the all important $430 as the dollar went to these extreme
lows. This time the European Union stands out as the glaring
difference between present day and 1995. No longer does US dollar
policy rule the global trading environment. We share this rule
with a growing power in the European currency structure and in
turn the bulk of European nations are at the same export disadvantage
the US had just under 3 years ago.
After the article, Treasury
Secretary Snow and a crowd of others came out and basically said
the dollar did what 'we' needed it to do and the plunge is over.
Technically speaking this spurred the run through critical resistance
at 8485 and the market ultimately leveled off in the mid-85 area,
only to test the lows again. The recent support, which incidentally
was above the double bottom support, shows the biggest technical
sign of all - the market was not willing to set fresh lows. So
a technical analyst would look at this and make one of two conclusions
- we are setting a narrowing channel (long term pennant) or the
market developed bottom support and is heading higher. Either
way, the dollar has seen its lows for a while, and if the market
breaks to 86 watch out.
THE GOLDEN ARC
Followers of my newsletters
know that I am big on having proper macro perspectives on a market.
Perhaps, this is no more relevant than in gold analysis. On a
monthly chart, one sees what is possibly the most perfect and
true saucer formation I have ever come across, suggesting increasing
upward trend line support in gold for several years. But true
technicians know that saucers ultimately fail, and fail in a
fairly unpredictable fashion. Recent breaking of the tightest
arch you could effectively draw on the monthly chart suggests
a weakening in the fortitude of the pattern, and the recent strong
support in the dollar and 'life raft' pause by the gold market
suggests the writing is on the wall for a full on break of this
long term pattern.
The bottom line is a move to
360 doesn't change the long term bullishness of the market. In
fact it's a blip on the screen if you are a true gold
bull. Even if the dollar is in a dead cat bounce it is still
enough to see that type of retracment. Face it. The dollar is
set to move higher, and metals are long overdue for a small spec
shakeout. Get out of the way and thank me later.
March 30th, 2005
James Mound
JMTG's Head
Analyst
email: info@Moundreport.com
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