By the way Gold is the most technically traded major instrument
The beauty of Gold is that it is international and beholden to no one. But Gold is traded 24/7 around the world. It is the ultimate economic independent. It’s an item that represents wealth of its own, without the express backing of any nation , tribe or religion. It is a hedge against inflation. But we have no inflation now. In fact all the major central banks fear that we are entering a major deflationary cycle. So what is the real force driving Gold up? I think it is the current political climate . If it subsides all this euphoria in Gold will also come down. But let us look at it more technically.
A good understanding
The wave principle should have kept the experienced traders on the right side of the markets most of the time. Combined with a good reading of sentiment factors should have kept you from not being sucked into the recommendations from the market pundits and mining company analysts. I can go on a rant from the time Gold topped out at 1918 on Aug 22 , 2011 but let us pick it up from the recent past. Though we have been able to capture most of the turning points, the move down to 1266 on May 02 confused us. While I commented that move down may be the end of the structural move down, it seemed too shallow to constitute the entirety of it decline.
The strong rally with euphoria since then and the move above 1366 confirmed that the primary wave B is still under play and it can rise to 1400 to 1550 . So far prices have carried to 1438 .
Bullish sentiment in gold is extreme
Large speculators in gold futures increased their position size to 39 % of open interest, which is the largest in 19 months . Seems it happened with euphoria.
On Jun 21 a record $ 1.5 bio flowed into the SPDR Gold shares( GLD ) and the iShares Gold Trust( IAU ) which is the largest one – day purchase of these ETF’s in history. On 24 jun the Daily sentiment index surged to 96% bulls among gold futures traders the highest level since August 19-22 , 2011 ( 98% ) which marked the all time closing high for the SPDR Gold shares ( GLD ) . Gold bullion peaked a month later in Sep 2011 . The option volume in puts and calls for GLD is spiking . The 3-month , 25 delta risk reversal for GLD shares , surged to the highest level since Gold’ s peak in Sep 2011 .
What this means is that the cost of buying a GLD call is significantly higher than the proceeds received from selling a put . In other words option traders are clamoring to speculate on a continued gold rally .
My point is we are still in a bear market rally
While we may continue to rise in primary wave B eventually primary wave C will take us down to 1046 the low in 2015 . A four month bearish non- confirmation exists between gold and silver as gold rallied past 1347 on Feb 20 , while silver remained below 16.25 its peak of the same day . Bullish sentiment is not as extreme in silver as it is in gold , so it’s possible silver will rally more than gold. Well for some reason if war breaks out all this analysis will be kaput .
Stay tuned.
Author: ©Abraham George, CEO, Founder at AllSeasonsPTL Capital Management Ltd
