Chris Vermeulen – www.TheGoldAndOilGuy.com
Over the past week precious metal investors have had a wakeup call
from their big shiny nest eggs. Last week’s free fall in both gold and
silver spot prices was enough to get investors into a panic. More on
this in a minute though…
The fall was triggered by three key factors which caused the powerful
move down. The first factor is based on pure technical analysis (price
and volume patterns). Because the metals had such a strong run up this
summer and prices had moved to far too fast, it is only natural so see
price correct back to a normal price level. In general any investment
that surges in one direction in a short period of time almost always
falls back down shortly after. As I stated in my weekly report on August
31st, “gold is forming a topping pattern and all investors should take profits or tighten protective stops (exit orders)”.
Three days later gold popped to the new high completing the pattern and
was quickly sold off which continues to unfolding as we speak from
$1920 down to $1532 in only a couple weeks.
The second factor which I think had the most power behind the drop
were the margin requirements changes. This new rule literally overnight
caused traders and investors holding to much of the metals in their
account to liquidate (sell) their positions without having any say in
the matter. That is when the most damage was done to the price of gold
and silver.
The key factor was the US Dollar which rocketed higher and adding a lot of pressure to the metals. I also covered this in my Aug 31st report
in detail. Overall, past few years we have seen both gold and silver
move in opposite direction of the dollar. I don’t expect that to change
much going forward. Back in August the US Dollar was coiling (building
power) and it was only a matter of time before it would explode to the
up side and rallied. This high probability move in the dollar was what
triggered me to exit our long gold positions shortly after. I expected
the dollar rally to last a month or more and that means we would see a
lot of pressure on equities and metals going forward.
Now keep in mind, if Greece or other countries continue to get worse
then we could see the dollar and gold move higher together as they are
seen as the safe haven at this time. But with the nature of the two I am
anticipating a rising dollar and sideways trading range for gold.
Ok, so back to precious metals investor sentiment…
Last Friday and all of this week I have been getting emails from
traders and friends saying they are going to sell their gold and silver
because they are concerned metals will continue to fall and because many
of them are now losing money after chasing prices higher through the
summer. The good news is that one of my best indicators for helping to
time market tops and bottoms is to just read my emails and answer the
phone. During market tops, generally the final month when prices are
soaring to new highs every day/week is when everyone contacts me and
says they just bought gold or are about to buy more gold cause it’s such
a great investment. Once I start getting 2-5 of these messages a day
alarms start going off in my head. This works the same with market
bottoms. So with everyone now in a panic and selling their positions I
feel we are darn close to one if we did not see it already…
Let’s take a look at the charts…
Silver Spot / Futures Price Chart
As you can see on the hard right edge silver is forming a very
similar pattern which happened this past spring. I would like to note
that this type of pattern is typical with extreme market selloffs as to
how they generally bottom. I am anticipating silver trades in this range
for a couple months and that we could see lower prices in the near
term. But my upside target for silver in the coming few months is the
$35-$36 level.
Gold Spot / Futures Price Chart
Gold is doing much the same as silver but I have noticed that when
gold falls hard the second dip generally does not make a new low as
often. If we do get a new low, all the better for buying on the dip but
overall I feel gold should trade sideways for a couple months. My upside
target for gold is the $1750-$1775 area.
US Dollar Index Price Chart
The Dollar index is looking ripe for another bounce and possibly
another rally to new highs in the coming week. If this happens then we
should see the SP500 short position (SDS) which we took Tuesday
afternoon (Sept 27th) to continue rocketing another 5-8% in our favour again.
Mid-Week Trading Conclusion:
In short, I feel the US dollar is going to continue higher and that
will put the most pressure on stocks, oil and silver. Depending how
things evolve overseas gold could hold up and possibly rise with the
dollar.
So far subscribers have pocketed over 40%
gains this month using ETFs on the SP500, Dollar and Oil and are holding
another winning trade in the SDS etf taking partial profits today. If
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