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Article
Introducing My New "Midas Touch Gold Model"
by Florian Grummes
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The model is the result of my research and analysis work during the last 12 years. It crunches down a lot of data into 19 different current analysis aspects that I think are relevant to the gold market. All the sell and buy signals with a date and reversal number are referring to a very simple technical analysis approach using the Parabolic SAR Indicator. This stop and reversal indicator makes it a trend following system by nature. But I also have implemented sentiment and CoT-Data as well as volatility and real interest rates so that the system will have a certain contrarian input too. All the different signals are mechanical and are not subject to my personal opinion.
This model would have kept you out of any bullish longer-term gold trades since the end of 2011. Especially because the sell signal on the monthly gold chart is still in place since early December 2011. Any recovery in the meantime has never lasted longer than 2-3 months. This monthly sell signal was extremely powerful! Currently it will reverse into a bull mode if Gold prices move above $1,308.
To be successful in the markets, you need to control your emotions and only act rationally. Since we never learned this in school, 90% of the traders and 80% of the investors are losing money. You also need to understand that in the gold market there are a lot of highly charged emotions floating around because mankind has valued the shiny metal for more than 5,000 years. Thousands of people have killed each other just to get it into their hands! No other market has so many strong beliefs and emotions attached to it. Gold has been money and will be money for the foreseeable future. It is the antidote to irresponsible spending by governments and central bankers but at the same time a radical gold bug mentality is not the right approach. You need to listen to the market and not try to force your beliefs upon it. This model is aimed to help you in making rational decisions and is also a great tool to understand the big picture and what´s going on in the gold market.
The Midas Touch Gold Model
For a larger image Click Here.
During the last two weeks the model remained in sell mode. Gold Volatility as well as the HUI Goldbugs daily chart has moved to a new sell signal, while Gold Sentiment is now flashing a contrarian buy signal. The model sums up to -11, meaning the sell mode is intensifying. If Gold moves above $1,209 we will get a buy signal on the daily chart and the confirmation that some form of a recovery is on the way.
Gold Daily Chart
Gold has been very weak during the first two weeks in March. Bulls could not defend the $1,200/1,190 level and consequently the market sold off down to a recent low around $1,146. The main driver remains the unprecedented US-Dollar strength. Despite any short-term moves, Gold is in a clearly defined downtrend and should find its final low somewhere between $980-$1,035, likely in May 2015. If we don't get down to this level the bear market will probably extend for another year, but I think chances are pretty good that we will see the final low for this bear market within the next 2-3 months.
The recent break-through the important support level at $1,180 once again confirmed the descending bearish triangle formation which has been developing for nearly two years. This time the breakthrough below $1,180 is more decisive and does not look like the bear trap we got last November. Short-term as long as the Slow Stochastic is moving below 20, the bearish trend is locked in no matter how oversold the market becomes. Either Gold can stage a recovery towards at least $1,180, maybe $1,200 and unlikely until $1,240 very soon, or Gold will directly test the November low at $1,130 before any recovery towards $1,180 could happen. Overall the downtrend is in place and I feel like $1,130 and later $1,050 will be acting as strong magnets.
The most promising strategy in my eyes, is simply to wait until May/June for the final bottom in Gold and the Gold stocks. Then and only by then the market should present a wonderful contrarian entry setup.
Traders should be very careful here. Gold is oversold and can bounce any minute, but this oversold status can remain much longer as well. Due to the fact that the overall trend is still clearly down, I´d only be looking for a good entry to short this market in the next couple of weeks. Any recovery towards $1,200 or $1,240 would present a reasonable risk/reward-ratio.
Investors have been able to accumulate physical Gold below $1,200 in the last 10 days. I recommend lowering the buy limit down to below $1,150 and continue to accumulate into weakness until you hold 10-20% of your net-worth in physical Gold and Silver as insurance.
Long-term Personal View/Beliefs
The return of the precious metals secular bull market is moving step by step closer and should lead to the final parabolic phase (could start in summer 2015 or 2016 and last for 2-5 years or even longer). Before this can start Gold will need a final sell off down to $1,050-$980. My long-term price target for the Dow Jones/Gold-Ratio remains around 1:1. and 10:1 for the Gold/Silver-Ratio. A possible long-term price target for Gold remains around US$5,000 to US$8,900 per ounce within the next 5-8 years.
Fundamentally, as soon as the current bear market is over, Gold should start the final 3rd phase of this long-term secular bull market. The 1st stage saw miners closing their hedge books. The 2nd stage continuously presented us news about institutions and central banks buying or repatriating gold. The coming 3rd and final parabolic stage will end in the distribution to small inexperienced new traders and investors who will be subject to blind greed and frenzied panic.
About the Author: Florian Grummes (born 1975 in Munich, Germany) has been studying and trading the Gold market since 2003. In 2008 he started publishing a bi-weekly extensive gold analysis containing technical chart analysis as well as fundamental and sentiment analysis. His newsletter with updates on this model and gold is free and you can subscribe here. Parallel to his trading business he is also a very creative & successful composer, songwriter and music producer.
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Trading Tip
Ho-Hum: With Crude Oil, Supply and Demand Wins Again
by D. R. Barton, Jr.
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Back in September 2014, with the price of crude oil at $94.42, I wrote an article in this hallowed space about the beguiling price of crude oil. It was so much lower(!) than analysts thought it should be. The reason? With the conflict in the Ukraine and the threat that ISIS might target oil producing assets in the Middle East, there was a widespread thought that the “risk premium” for oil was too low.
In that article, I described how my 3rd grade economics students would understand that oil prices were dropping and heading lower because of the simple rules of supply and demand.
In mid-January, an article entitled “Oil Still on a Slippery Slope” described how even though oil was due for a technical trading bounce, that Saudi Arabia’s economic and political agenda was combining with shale production and other supply and demand factors to with this conclusion, “That equals crude prices remaining at lower levels for longer than many realize.”
Exactly a month later, I wrote that despite plummeting rig counts, production continues to expand, especially in the U.S., and that crude prices ”would likely remain depressed.”
I reiterated that stance on CNBC’s Closing Bell one week later when rig count dropped yet again.
What About Now – What’s Next for Oil?
The U.S. rig count keeps dropping (and getting the headlines) but production keeps climbing. Weekly production is up 42,000 barrels per day in the U.S. since last week and up 140,000 vs. this time last month. And versus the first week of March in 2014? We’re up a whopping 1.184 million barrels per day! Here’s the chart showing field production going straight up (current as of 3/11/15 reporting date).
To view a larger image Click Here.
Will crude prices continue to drop from here? My analysis is this: yes but not in as straight of a line as we’ve seen since in the last couple of weeks (seven down closes out of the last eight trading sessions). An important 15-year trend line has been broken as seen on this chart.
Volatility will rear its head and we’ll likely test this broken 15-year trend line from below in the near future. That’s a very common pattern. If the trend line holds as new resistance on the first one or two tests, look out below.
The next support level on the downside is at the $35 level formed by the 2008-2009 lows. On the upside, we have an important resistance zone at the $55 ice level that we can see on the chart below.
Tuesday’s inventory level announcement (after hours) from the American Petroleum Institute spooked the market showing (surprise) a big rise in crude supply. This caused a 70 cent drop in crude prices to fresh six-year lows. The more widely monitored Energy Information Administration inventory report is due out tomorrow and could drive prices further down.
Your thoughts and comments are always welcome - please send them to drbarton “at” vantharp.com – I always enjoy hearing from you!
Great Trading,
D. R.
About the Author: A passion for the systematic approach to the markets and lifelong love of teaching and learning have propelled D.R. Barton, Jr. to the top of the investment and trading arena. He is a regularly featured analyst on Fox Business’ Varney & Co. TV show (catch him most Thursdays between 12:30 and 12:45), on Bloomberg Radio Taking Stock and MarketWatch’s Money Life Show. He is also a frequent guest analyst on CNBC’s Closing Bell, WTOP News Radio in Washington, D.C., and has been a guest on China Central Television - America and Canada’s Business News Network. His articles have appeared on SmartMoney.com MarketWatch.com and Financial Advisor magazine. You may contact D.R. at "drbarton" at "vantharp.com".
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A Meaningful Change In My Thinking
Dear Dr. Tharp,
We have not met and whilst I would dearly love to be with you this week in Sydney I am unable to attend.
I just wanted to thank you for everything you have done for me and by implication, my family.
Through the resources available on your website and newsletter, I have been able to achieve meaningful change in my thinking. I have been fortunate to have modest success in life. However, a few years ago I clearly understood I could not continue to interact with the world in the way I had or I was going to explode at some point. I was worried my behavior was a poor model of how to construct a happy life for my children.
I had sufficient insight to understand I was the architect of my own difficulties. I have now managed to substantially transform behavior, and am a much calmer person. Your article about suggested readings prior to Christmas have really been an additional step on the journey for me. “The Disappearance of the Universe” and “A Course in Miracles” workbook will now be lifelong companions for me. I think they are helping me to achieve the inner calm I am seeking. I think I have found a local venue where I can experience a Oneness blessing.
I really appreciate your courage in suggesting resources like these. My former, hard driving self would have most likely made some unthinking disparaging remarks about them. The revised version of "myself" knows that I need these resources to create a calmness for myself and those around me. My relationships with my wife and children have benefited enormously from what I have learned so far. My wife tells me I am a different person than I was 3 or 4 years ago. I am able now able to support her in sickness and in health in a way I would have been unable to do in the past.
I am purchasing the "Peak Performance Home Study" course, and will attend in person when circumstances allow.
If you had known me, you would be astounded to receive this sort of communication from me. I was not usually one to say that much. However, I am really appreciative of your help. You have genuinely helped me and I hope that I can pass what I have learnt on to my loved ones.
I am genuinely grateful for the help you have given me. —Anonymous
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