Home—Online trading—Spread betting explained—Spread betting blog—Gold is pushing for $1,800 – will it make it?
Sep 28, 2012, 04:03
Posted byJohn C Burford
Comments (36)
OK, it’s time for me to face the music on gold!
If you’ve been reading MoneyWeek Trader a while, you’ll know I’ve been bearish on gold. But lately it’s kept going up. In fact, this market has given me headaches for some time.
I last wrote about gold on 29 August: Gold on a tear – but for how much longer? Back then it was trading at the $1,670 area. A month on and it’s in the $1,780 region – a rise of $110 or 6.5%.
So the simple answer to that headline is: “Much longer!”
I can’t deny it. The exponential rally over the past few months has been stunning. But can it make it through the tough $1,800 level? Let’s have a look.
Here is the daily chart:
(Click on the chart for a larger version)
With that pink bar, I’ve indicated the large resistance zone surrounding the $1,800 level.
It’s clear that much of the buying has been inspired by visions of hyperinflation down the road. Many think this is assured by the promises of much more available liquidity from further QE operations by central banks.
In fact, the US Fed has promised ‘unlimited’ liquidity injections.
One of the problems with this rationale for me is the fact that everyone on the planet now knows Fed policy and therefore, the only surprise could be to the downside. There is no room for positive surprises with the word ‘unlimited’!
Time and again, I have observed that after a stunning bull run, such as we have in gold, when a clear-cut bullish development occurs (Fed policy), then a major top is close at hand.
Of course, trader sentiment often indicates when a market is too one-sided. And by some measures, bullish sentiment has been running over 90%.
Here is the latest Commitments of Traders (COT) data:
Wow! The hedge funds (non-commercials) are massively long by a ratio of almost seven-to-one. Even the small specs’ (non-reportable) long positions outnumber the shorts by more than four-to-one.
But look at the changes on the week – the specs of all sizes have massively increased their long bets.
They are in danger of making one of the biggest errors in trading – getting more bullish as the market is in one its exponential rally phases.
I can’t pin-point the exact top, of course. Who can? But when the top is in, I can confidently state that the falls will be spectacular. Will the heavy resistance I show on the top chart turn this market around? I wonder…
The other point is this. When it appears there is only one way for the market to go… you just know the turn is at hand. This is the seeming perversity of markets.
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OK, if I zoom in on the near-term chart, can I find any clues as to market direction?
Here is the hourly:
I have a decent tramline pair with good touch-points, except for the two slight overshoots. Remember, gold is a highly emotional market and we must expect these.
The market has been climbing up these tramlines – until Wednesday, when it broke heavily below the lower line. That was the first sign to me that a top was near.
Let’s draw in a third lower tramline:
The dip has a clear A-B-C form – and the decline stopped precisely on my third tramline. Note the positive momentum divergence between the A and C wave lows – a sign that the rally had not ended.
And it didn’t hang around the third tramline for long!
This morning, the market is crawling up alongside the centre tramline. The question is: Will it push through or will it be rebuffed?
One of the things I look for when in this situation is this: I look for the nearest minor low and to set sell stops below this low. Here is the updated chart in close-up:
This 15-minute chart shows the most recent minor low (pink bar). There is also a budding negative momentum divergence (blue arrows), which is what I like to see.
So I have a potential set-up for a short trade where protective stops can be placed above the centre tramline.
Of course, the market may decide to make a lunge for the $1,800 level, which lies only $20 away.
But since this is a widely-touted target, it may not even get there.
The psychology here is interesting. The round number $1,800 is a common target where many long traders will be looking to take at least some profits. So if this level is missed, many will see their precious on-paper profits slip away.
They will then be tempted to get out while they can, grabbing the remaining profit. This selling would put added pressure on the market – and the numbers can be huge.
Just look again at the COT data – seven potential sellers for every buyer. Those odds are not what I would like on my side! This is exciting isn’t it? Let us know your thoughts below.
• If you’re a new reader, or need a reminder about some of the methods I refer to in my trades, then do have a look at my introductory videos:
• The essentials of tramline trading • Advanced tramline trading • An introduction to Elliott wave theory • Advanced trading with Elliott waves • Trading with Fibonacci levels • Trading with 'momentum' • Putting it all together
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(28 September 2012, 04:34PM) Complain about this comment
Admit it John, you got it completely wrong. Your focus on tramlines, waves and tealeaves has blinded you to what everyone else can see: currency is being debased by QE and gold is rising in value as investors look to protect their value. Own up: your bearish stance was wrong and all the signs you saw in your charts are meaningless waves and bumps.
(28 September 2012, 05:46PM) Complain about this comment
I think that John is good at predicting short term trends with these tools but longer term has been proven wrong over time. Gold by many of the bullish experts is expected to pull back slightly as sentiment has become too positive and overbought, and October is traditionally bad for gold, I have therefore gone short for now but will be looking to go long near the end of October or if gold becomes oversold, November is traditionally one of the best for gold and the US elections will be over on Nov 6th. To be bearish on gold over the long term when all fiat currencies are being devalued by money printing is fundamentally flawed, and has been proven so for a long time, gold will only stop appreciating over the long term when they stop printing money but they won't stop because it's too late to do anything else until complete collapse of the financial system!
I came across this blog by googling '1800 gold'! I'm from Australia :)I bought over $75k in gold/silver bars recently as I abandon shares, property and fiat money in general. Up until about 2 months ago I never would have dreamt of ownign physical metal, until I began seeing what the US Fed was going to do...Why are we buying gold and silver?We're a new generation of 'stackers', I don't care about graphs, shorts or longs, tramlines, trainlines, blips, blobs or datums.Fiat money is doomed, dead... When central banks begin printing money you know that fiat has lost. There is a doomsday banking collapse just months away at most. The Euro is barely 10 years old, it's a disaster. The US dollar was remade when Nixon abandoned the gold standard in 1971, now the USD is dead...being propped up by Bernanke and his printing presses...Own physical.. or lose everything ....
(28 September 2012, 06:46PM) Complain about this comment
There is huge support under gold and any correction is likely to be short lived. It has been overbought recently and may come off current levels but would be surprised to see it drop much below $1720. The 50 day moving average lies at $1690 and would expect massive buying if it reaches that level. Shorting is dangerous. Wait for a correction and buy with both hands
(28 September 2012, 06:52PM) Complain about this comment
Usual twaddle from you about gold John. But there may well be a correction. I hope so as I want to top up. You don't think that maybe the price of gold is being suppressed Johnnie?Your charts should make it very plain.
(28 September 2012, 07:21PM) Complain about this comment
Good evening everyone. Well i to dont see how gold can do anything other than rise in the long term and , at least as long as the dollar printing press keeps turning. However in the short term i think John has a point $1800 is roughly at a prior high and would be a tempting place to sell and bank paper profits if you had been long for any length of time and didnt want to risk losing them if the resistance held. Numbers are numbers and if the market is as heavily long as John suggests, well that is a big herd and they are all on the same side of the field so the pull back when it happens ought to be useful as a set up for another long. But for now a temporary short? an interesting idea On a four hourly 20 and 50 ema period chart the market appears to have room to fall back to nearly $1700 before it meets any substantial support or major tramlines. Any thoughts traders?
(28 September 2012, 08:19PM) Complain about this comment
Rule No.1 - Never fight the Federal Reserve. Rule No.2 - Never fight the trend (long or short).Therefore following these two rules means that you would go long on Gold. Warren Buffett kindly suggests that his rule no.1 is never to lose money and his rule no.2 is never to forget rule no.1. Now when the world economy is in crisis, the dollar is being battered, unlimited QE by the Fed to buy the one thing that they should not be buying, worldwide recessions, weak worldwide growth, record low interest rates and potential rise in inflation on the cards means that on any dips a sound investment would be to buy a long position in Gold.
(28 September 2012, 08:34PM) Complain about this comment
Yawn, yet again.Why is it soooo difficult for him to admit his cries of 1920 being the absolute top were wrong? We're not there yet, but the last year has been a simple pullback in a long term trend. 1800 being a bit sticky? Wow, he's waited til now to come up with that one, when most of us would've told him weeks ago that that would be the case. It's going to pull back down to 1690/1700 cos that's what the charts have been saying for weeks. And then it's off to the moon after that! Am I going to short it til it gets to 1690/1700? Not on your life, cos it might not even get down to there.I have three trams on my chart which are slightly different from John's. The reason is that the USD has an over-riding effect on the gold price. Again, no sign of that fact from John when he draws his trams. Buy at 1752 and sell at 1800, and ride that tram all the way up.
(28 September 2012, 08:38PM) Complain about this comment
Draw a tram from 15 Aug to 26 Sept, draw two above it (with the top one touching 14 Sept) and you have a much better fit.
(28 September 2012, 09:16PM) Complain about this comment
Thank you "mywarehouse" for your commentI have attended the moneyweek conferences for two years now and have been impressed by John's presentations.He is no fool.BUT he is SO wrong on gold to be bearish. Come on John admit reality about promises further "unlimited" quantitative easing (QE) operations by central banks.John,it does not matter about your contrarian bias that "the herd is always wrong" in this case the herd is correct.This is not about fashion or charts for gods sake.Please explain to everybody why printing money does not destroy its value in your philosophy,in plain english.Alternatively,being a bright guy as we know you are,come clean and tell us all why you take this denial stance on gold.Please ! Else these comments will be never-ending and tiresome.
(28 September 2012, 10:27PM) Complain about this comment
Sorry John but I have to agree with all the above comments. In my previouse comments regarding gold I've mentioned how it is now way above all its short and very long term moving averages, however, at golds present level it is entitled to a pullback to rebalance sentiment. As in 2008 gold went below the 252 day MA and many said the bull market was finished ,and then as now, gold then shot above and many pundits were amazed like you are today. If gold now pulls back to the 252 MA (1661 today) as in 2008 before another( possible) multi-year rise you will be only right in the "short term" but all you'll have for your efforts is increasingly worthless bits of paper in your hand. I believe this wonderfull bull market is far from over and as Jesse Livermore said all you need to know is "general conditions" nothing else matters.
(28 September 2012, 11:02PM) Complain about this comment
@mutleyfool- With reference to your bit about Johns "denial stance on gold". That's often crossed my mind also. When reading between the lines I often get the feeling he's hoping and praying that [the] top in gold is in. Now I really dont mean this to be nasty but I have a sneaky feeling John is like several others I know. When I started to buy gold at £215 they thought I was nuts. On all the dips since 2001 I've bought and not sold any and when I've told my friends to buy they didn't because they said it was exspensive and overbought. They are feeling bitter because they missed the boat when it set sail and now instead of getting on board half way into its journey they are afraid.....now they hope the boat will sink.
(29 September 2012, 10:08AM) Complain about this comment
Where exactly does John stand on the price of gold in currencies other than the USD? It's already at or above the high of a year ago in Euro and Swiss Franc. Worth a comment John?
(29 September 2012, 12:48PM) Complain about this comment
Beasties (above) makes a good point. India is one of the largest buyers of Gold. With Diwali coming which is an important period for when Indian consumers purchase Gold, has John seen the price of Gold in INR? It is at it's all time high due to the fact that Gold is priced in USD and the currency situation between USD and INR enabling Gold to hit it's all time high in INR.
(29 September 2012, 08:22PM) Complain about this comment
I hold the view that gold will continue to rise in value, long term and do not see any clear near term economic reason for it to stop rising in price versus the us dollar or other currencies as all Central banks are gradually forced to print currency to avoid excessive appreciation against the us dollar and the ruin of their export markets. That said it seems odd that the commercials are so net short and appear to be more net short in this cot report than the last. They are probably the best financed and have the best data yet they chose to be increasingly net short in what has for years been a rising market. Why? They are not stupid. We are probably amongst the non reported players, the retail market and viewed as the least well informed. Lambs to fleece perhaps or so they hope
(29 September 2012, 08:23PM) Complain about this comment
Ok well if everyone agrees that gold will rise the only surprise will be if it falls. If you had lots of money and were playing a zero sum game and everyone agrees the direction of the game the only way to win would be to surprise the person on the other side of the trade with a market move they were not expecting and so force some longs to bail out and allow you to cash in before perhaps going net long or less net short at a lower price Interesting to note the 14 day ADX on gold is dropping and from being above 40. The 14 day rsi is also dropping from having been just above 70 and the momentum reading is showing lower readings against the recent similar daily prices as it pauses just below $1800
(29 September 2012, 08:35PM) Complain about this comment
What does it all mean well perhaps nothing the market could just stay overbought and carry on up. But who will supply the buying pressure at the moment when the retail market seems to small,the hedgers are already long and the commercials are short and happy to go further short? If the market carries straight on up well good, the commercials will get burnt, but if not it will be us and perhaps the hedgers who pay for the commercials shorting and then hear their laughter as they join the ride north at support but with a better entry price We will know soon enough but it looks like a battle line maybe being drawn around the $1800 dollar price I hope the retailers win in the end!!!!!
(29 September 2012, 08:38PM) Complain about this comment
Think everyone is missing the point here. I don't doubt that we will see gold going onto produce new highs at some point, but for the time being and since September 2011 - a year ago - each high since then has been a lower high and unable to exceed the previous high. Like it or not guys, this is a bearish chart pattern and a very basic understanding of technical analysis tells us that. Despite the recent bull run, it now appears to be unable to exceed the previous high in Feb - again another bearish indication. John is looking at the short term here and not what Gold will be doing long term. Shorting on and off this last year at £10 a point has made me a decent sum! I will continue to do so until I get confirmation that price action reverses. To finish off, I thoroughly enjoy reading all of John's articles and have learned a great deal from his methods.
(29 September 2012, 08:45PM) Complain about this comment
Whether or not we agree with John's viewpoint, I cannot see that it justifies some of the rude and ill mannered remarks that are being left here by certain people. If you can't debate in an adult manner - please dont bother!!!Have a great weekend John
(30 September 2012, 02:41PM) Complain about this comment
@susan- Oh come on Susan, I've never met John but I bet you an ounce of gold that John is not the sensitive type and any comments that you deem rude roll off his back like water off a ducks.We understand that Johns blog is for short term trading and any colourfull comments made especially about gold is to try and push him in to letting us know his beliefs and long term views on this "barbarous relic" for added interest.For myself I use different methods for trading than John, however, I very much enjoy his blogs and have found many of his tips very usefull for which I am gratefull.
(30 September 2012, 03:26PM) Complain about this comment
Looking at the cot report John has printed the short commercials are represented by just 50 traders. Whoever they are or represent they are holding a very large amount of the market in their hands. If they are correct in going short they will clean up, if wrong they will be on the dole queue in a hurry. I wonder if the size of short they are placing is anywhere near large enough to be the author of its own success.
(30 September 2012, 04:55PM) Complain about this comment
Who exactly is saying that gold won't drop back a bit in the next couple of weeks? It undoubtedly will. This will be another buying opportunity before the next leg up.For those of us who have held gold for a few years, we're not going to offload the lot now in the hope of buying it all back at 1700 because it may never reach the theoretical pile-in price that the charts would suggest.Susan, well done for doing what John suggests and making money from the one year bear market, undoubtedly a trading style that works for you. How do you square the quite reasonable assertion (for the moment) that gold is still in a bear market in USD with the fact that it is quite a different matter in other currencies?
(30 September 2012, 04:59PM) Complain about this comment
Also, speaking only for myself, it's John's year-long commitment to stating that gold will never get above 1920 that is annoying. His short to medium term stance is very valid imo, but his longer term stance is looking very dodgy indeed. Some of us have a different reading of the charts to John, and see other patterns that it seems John hasn't as yet. He's the expert, but seems desperate to cling to his stance on this when a more balanced stance would seem appropriate surely? This is the first update I've seen from him where there's the slightest chink of doubt in his mind. Given that he regularly swaps from bull to bear and vice versa when the charts tell him so, it's a bit mystifying that he is so wedded to this view.John, if you feel I've been rude then I apologise, but it's just a bit of banter on here isn't it?I have a tramline on my chart that shows gold could conceivably keep going to 1855 in the current leg. Do I think it will? No.
(30 September 2012, 10:08PM) Complain about this comment
@BroncoBill & Beasties - Hi Both, firstly Bill I don't doubt what you are saying but reading comments like the first one on here are rude and unnecessary and not particularly adult. Call me old fashioned but politeness coutesy and manners cost nothing! Again Beasties agree with what you are saying about gold and to be honest its not down to John's methods that I've been shorting gold on and off for the last year, I've just agreed with his stance entirely. I use mostly technical analysis and as I've said beforem any chart that repeatedly puts in lowers highs than the previous time it reached its high, is a bearish indication. The opposite is true in a bull chart. Gold has made 3 highs since last September and each time they have been lower than the last one. If any of them had been able to exceed the previous high then I would have taken this as a possible reversal indicator and change of sentiment.
(30 September 2012, 10:11PM) Complain about this comment
To date Gold has been unable to get higher than the high of 29 Feb and 8 November. For the 3rd time since last September it looks again like the price cannot exceed the last high.Hope you both have a good week if you are trading. Susan
(01 October 2012, 02:28PM) Complain about this comment
never short a bull market, you'll more than likely get your fingers burned. And this is a bull market. The big money is in the bull move at the minute and as Jesse Livermore used to say "its the sitting tight that makes you the big money" also i don't see John in this years sunday times rich list......
(01 October 2012, 08:07PM) Complain about this comment
I agree totally with JR 1987 (above). The traders that make the real top money are the trend followers. Kevin Bruce, John W Henry, Bacon, Bill Dunn, Drury, Charles Faulkner, etc. Have a look at www.trendfollowing.comThis will open your eyes to the traders that make money consistently.
(02 October 2012, 10:15AM) Complain about this comment
I am not yet in a position to say I am a strong supporter of John's approach but continue to look in & try & make sense of it. I have a feeling I'm unlikely to for reasons I've mentioned before. The key one is that there is a built-in requirement to attempt to predict the scale of moves, changes of direction & then scale of moves in the new direction by use of Elliott wave theory.I have been trading for many years and have never cracked this. All I can do is determine where I think the trends & turning points are.Reading many of the above posts I could be forgiven for thinking I'd tuned into an investment blog rather than a trading one. If you're looking at investing in anything you have to take a view on the likely direction & scale of any moves to make the whole effort worthwhile. With trading you clearly don't.Ironically the arguments with John's approach above seem to result from this clash betw
(02 October 2012, 10:21AM) Complain about this comment
...between the trading & investing requirements. If John's method didn't include the element of prediction it does I doubt there' d have been this clash.You CAN make make money trading against longer term trends, I do it all the time!So I suggest a little more clarity from contributors on whether they are traders or investors would help lower the temperature!JohnO for example has clearly pinned his colours to the mast by declaring he no longer trades anything, having become a long-term investor in gold. Fine but it is no basis for criticising John's stance - that should be left to the traders!
(02 October 2012, 11:05AM) Complain about this comment
I've been racking my brain about why some of the points made above seem familiar. Got it! There were very similar arguments put in the latter phase of the tech stock boom, just before the, you know, bust!No trend is indefinite and once you start to get complacent about the strength & direction of a particular market, where everyone and his dog is buying, then it's time to reach for the hard hat.The broad thrust was similar - there is this that & the other argument why the good times should continue to roll. But markets are not fuelled by such logic - only by, often irrational, unpredictable human acts.
(02 October 2012, 11:26AM) Complain about this comment
Wow, what if John is wrong. What matters is that he sticks to his trading plan which may be different to your own. Just because he has different views to some of you does not mean that you have to put him down its as if you are trying to justify your own positions.
(02 October 2012, 02:16PM) Complain about this comment
I think some people need gold to rise because they have already bought in and need it to rise so they can make a profit.Be careful of those pushing for a rising price as they will profit from those who buy later.
(02 October 2012, 02:59PM) Complain about this comment
Like a Ponzi scheme you mean, Jim?
(02 October 2012, 10:01PM) Complain about this comment
Johns approach is aimed at swing traders. Investing in gold for the long term as QE continues to weaken currencies is probably sensible and when you consider the inflationary pressure this causes, its a good move to protect wealth.However, johns method allows traders to profit on the dips and peaks by switching position short term instead of investing long term. This allows some tidy profit to be bagged. Looking at COT data however, i have to say we might just see a correction downward. Time will tell.
(04 October 2012, 04:11PM) Complain about this comment
I own phys gold (well ETF Phys) for the long term protection - cost low to hold now anyway as insurance - but am an avid watcher of thr trends and an avid reader of your trading advice and lessons. Bit late with my emails so we know that you got it right again on the swing trader basis.Wish I could have got away to join your trading class as I would love to join in for the fun of it an something to do - retirement is so boring when you have been in business.Please keep the email classes going - they are a treat.Thanks again.
(08 October 2012, 02:01PM) Complain about this comment
I still disagree with John's bearish long term view, however it is easy to imagine gold not reaching 1800 just yet. I think we are in for a bit of a correction. However I will sit tight as I have for the last 12 months and remain long gold and silver
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