Date: October 16, 2013

Another Crossroad for Gold

I haven’t written about gold in a while, probably because it’s been so darn frustrating. And if you ask my thoughts on the metal, they will vary greatly depending on the time horizon. Long, long-term, I believe the secular bull market that began in 2001 is alive, but gold is curently in a cyclical bear market that began in mid 2011 and could last until we elect a new president in 2016 or it could end in short order. It’s just too early to tell.

Looking at the chart below (click on it to enlarge), it certainly seems like the metal is trying to hammer out a base for a sustained rally. This pattern began in April and continues today. Those of you who use technical analysis and like to look for chart patterns may be inclined to call this an inverted head and shoulders bottom, which it does look like on the surface. However, Edwards & Magee beg differ in that they do not believe these kinds of patterns are valid on commodities or indices where volume isn’t a true representation like it is with a stock.

In any case, whether or not it’s a valid inverted head and shoulders or just a consolidation waiting for a spark, the bulls in gold appear to making yet another stand as long as this week’s low is not closed below. You can see the following in my notes on the chart as well as these comments.

1 – The downtrend line in dark blue is more than $100 away, which is a good rally no matter what.

2 – If and when it breaks above that line, there is a very real possibility of an additional $100+ rally.

3 – This week’s low is the lowest point on the chart after THE bottom in June.

4 – If the bears take out this week’s low selling should really accelerate.


The bottom line is that the bulls have an opportunity here with a good risk/reward ratio. If they are wrong, the risk is definable.


Paul Schatz, President, Heritage Capital