Gold Analysis & Strategy
My name is Florian Grummes. I live in south Germany and am a self-employed independent professional trader and investor in the gold market. I started focusing on this market in 2003 after listening to one of Van’s programs in which he discussed the DOW/Gold
I write this gold market update every two weeks to have an ongoing trading plan that guides my trading in the gold market. As I learned from Van, we trade only our own beliefs about the market. Therefore, please be aware that this report represents, and is based on, my own beliefs about the markets and gold. This analysis is meant to be an educational service for you and does not represent a recommendation for any kind of investment. If you have any questions, feel free to email me at
florian.grummes AT web.de. Also, if you want to sign up
for my free newsletter, drop me an email.
1. Gold spot price Analysis
1.1. Gold in USD (one ounce =
As expected in my last analysis, the breakout of the triangle finally happened last week. Although the level of US$1,000, as well as the all-time high at US$1,037, has yet to be reached, the market made a clear statement. I am pretty sure that this was the next strong up-move in the long term gold bull market that everybody was waiting for. Only a pullback below US$980 would negate this positive picture.
I would like to review the last big rally in gold during 2007/2008 to give you an idea about what we can expect until spring in the gold market.
Gold topped out at US$730 in May 2006. During the next fifteen months, it failed four times at the US$690 level. After a short but tricky pullback down to US$640, gold finally broke through the US$690 level in mid-August 2007 and started a huge rally. Despite overheated short term indicators gold went straight up to US$744 without any correction! The first pullback was less than US$20 back to around US$720 and lasted for 2 days! The second small correction was from US$770 to US$742, and it only lasted 3 days. All the shorts got smashed during this time.
The first real correction happened in early November at US$844 and took Gold down to US$770 again. The following consolidation in
the form of a triangle lasted for six weeks, but in mid-December the bulls took over again and gold went straight up until mid-March 2008 to US$1,037. It is very interesting to note that both of the important levels at US$844 and
US$1,037 are the exact 161.8% and 261.8% Fibonacci extensions of the previous
With this information, you will understand my projection for the current rally in gold until spring 2010. The prerequisite for this scenario is that gold will not fall down below US$980
During the last three trading days of last week, gold moved up in a very strong manner. No short term pullbacks happened, which is typical for a breakout. Even if the short term indicators are overbought, we can expect that gold will run up to US$1,050 without any break! Then we should see a short pullback down to around US$1,020, and I expect another strong move up to US$1,250
The US$1,250 level marks the 161.8% extension of the correction that we experienced since March 2008. At this level we should see a short but heavy pullback of approximately US$110. So this correction should go down to around US$1,140 and last a couple of weeks. During that correction all indicators will cool down and a test of the 50d MA should be in the cards. After this healthy consolidation, gold should be ready to reach the 261.8% extension at US$1,600
in spring 2010. At that point, gold will top out and create a trip to Hell for the greedy, crowd following traders and investors
(with a nasty and fast correction down to probably
This projection, of course, is hypothetical and only time will tell the exact story.
One goal is to show you that it is a very bad idea to short the market at the moment.
My other goal is to show that the potential to the upside
is clear. My personal experience is that one should not trade these up-moves with a short term trading approach; instead, one should keep leveraged positions with reasonable position sizing until the first bigger correction during winter appears.
All the indicators that I normally analyze in my reports are not very helpful at the moment. The 50d MA (US$944.91) and the 200d MA (US$909.27) are running parallel to the upside and really are not important right now. Because of the breakout, the Bollinger Bands are not very meaningful. This will change again, of course.
Gold seems very likely to finish its mid-term correction since the all-time high in March 2008, at US$1,037 now.
To reach this price it is still necessary that it sustainably breaks through the level of US$1,000 and any pullback,
(I do not expect this) within the next days should not go down below US$980.
The long term technical and fundamental perspective for gold is still
very bullish. The next price targets are the Fibonacci Extensions of the complete correction from March 2008 to November 2008. This gives us the two projections at US$1,250 and US$1,600.
The Dow Jones/gold ratio is now at 9.49, which indicates that the next rally in gold has started.
For the Dow, unfortunately, it is much harder to evaluate the situation. The bear market rally that started in February 2009 might find an end soon,
or at least there might be a correction during
September/October. That could be negative for
gold because of forced delevergaging. On the other hand, the strength of gold clearly reflects the coming meltdown in public confidence, the need for safety, transparency, and the lack of trust in governments in general. On top of
that comes the news that Hong Kong is going to take its gold out of the vaults in London, and the Chinese government is encouraging its people to
personally buy gold. For the well informed smart money, this isn’t really news, but it seems that most
mainstream investors have just started to realize this.
Long term, I expect the price of gold to move towards parity to the Dow Jones (=1:1).
This means we are in a long term bull market in gold (and commodities) and in a secular bear market in the
equity markets. However, this might take years to play out.
1.2. Gold in EUR (one ounce = 694.17€)
Also in EUR gold shot straight up and closed last week just below the 700€ level.
Everything is in place for a big rally now. Gold should conquer the 700€ level soon. The next price targets are 730€ and the high of February at 793.5€.
The weekly MACD Indicator looks very good and gives gold in € massive room to the upside!
1.3. Gold Bugs Index USD (409.06 points)
The index of the gold mining stocks HUI already reached a new high for this year! The breakout of the triangle is obvious. Now we should see an attack of the all time high at 520 points in the next weeks and months.
Contrary to gold itself, the mining stocks are pretty far away from their all-time high. From this perspective, there is a lot of potential.
On the other hand, the gold-mining stocks already went up more than 170% since November 2008, but if the “small” gold sector gets started and big money
moves in, everything is possible.
Below is a chart of the goldmines-index during the 1970s.
Get yourself ready for a rollercoaster trip!
1.4. Gold COT Situation
The very high short position of the commercials reminds us to stay alert. This fact does not support a new big rally in gold, but because of the new rules for the future markets the few big short sellers might be forced to cover their positions.
It is also very likely that the big shorts are heavily long in the option market.
The strong up-move in gold during the last few days is not yet reflected in the numbers for this week.
This Friday we will know more.
18.04.2009 = -153.419 (PoG Low of the day = US$885 )
19.05.2009 = -183.065 (PoG Low of the day = US$920 )
26.05.2009 = -208.136 ( PoG Low of the day = US$939 )
02.06.2009 = -226.521 ( PoG Low of the day = US$970 )
23.06.2009 = -194.430 ( PoG Low of the day = US$913 )
14.07.2009 = -182.287 ( PoG Low of the day = US$917 )
04.08.2009 = -228.193 ( PoG Low of the day = US$950 )
11.08.2009 = -222.905 ( PoG Low of the day = US$943 )
18.08.2009 = -204.545 ( PoG Low of the day = US$933 )
25.08.2009 = -211.342 ( PoG Low of the day = US$939 )
01.09.2009 = -216.708 (PoG Low of the day = US$940 )
1.5. Gold Seasonality
In the past, September has always been an extremely positive month for gold. And it looks like this year is no exception. So seasonality now strongly supports rising prices.
1.6. Gold Sentiment
The bull market feeds the bull market. Most market participants do not see the potential of the gold market yet. Yes, the sentiment is very positive but only hardcore gold bugs expect a 50% rally within the next few months. As I mentioned in the last issue, it is not a good idea to stand into the way of a crazy crowd of bulls.
The charts are very positive and strong rising prices are very likely. It is not too late to get on board. Besides a possible correction of the broader stock market, the high short position of the commercials and the HUI´s 170% performance since November 2008 are the only warning signals I can see at the moment.
But this time, contrary to the past, a correction in the stock market might drive even more people into the gold market. Every weekend some US-banks are going bankrupt. Hyperinflation is the sure final outcome. In this environment, who can you trust? Only precious
metals in your hands!
Breakout out of the triangle
Breakout to the upside
Breakout to the upside
Short position of the Commercials is still very
the ratio failed at the level of 10
silver rising stronger, indicates a rally in the
precious metal markets
indicates a rally in the precious metals markets
– ETF Stocks
small ETFs are getting more investment money
best month for Gold
gold bulls are in stampede mode – don’t get
into their way!
mining Stocks HUI
strong, New Highs for this year
very tight. Indicates bullion supply is low
aren’t any Dollar Bulls – but the dollar chart
net long, Dollar Rally might be possible
demand weak, but the Chinese and Arabs are buying
is still very weak
• A must read: Martin Armstrong Money
• Hyper-Inflation in Weimar, Germany
About the Author: Florian Grummes (born in
1975 in Munich) has been studying and trading the Gold
market since 2003. Beside a lot of self-development
workshops and seminars his experience in the gold market
comes from trading and investing his own money to
finally become a very successful self-employed precious
metals trader and investor. Along with his trading
business, he is also a very creative and successful composer,
songwriter and music producer.