Metals: Gold & Silver

By Louise Yamada Technical Research Advisors, LLC ("LYA")

January 4 (King World News) - Gold spot price (GOLDS-1,655.85), as noted herein last month, remains in the bizarre position of declining along with the dollar, to which Gold usually carries an inverse relationship.  But there have been temporary exceptions over time in the historical correlation.  One might also consider simple capital gains being captured in face of new tax laws, as has occurred with many extended stocks.

From a longer-term perspective (see Figure 19), considering the 2008-2011 advance achieved a gain of 173%, the advent of this corrective phase should not come as a surprise.  The 2005-2008 advance achieved a gain of 145% and resulted in the 30% decline into 2008 and a full 18 months to complete a symmetrical consolidation.  

We described last month the potential for a similar symmetrical consolidation (see saucer) that could extend through the first quarter of 2013, assuming no further lows being put in place.  The daily, weekly (see arrow, lower panel) and monthly momentum models are all on a Sell, so currently the path of least resistance remains down.  

Gold has declined through both the 40-week MA and the May 2012 uptrend near 1,670, now suggesting 1,600 may be tested, with the critical support at the May low of 1,529.  As long as these supports hold, the symmetry study remains in place

However, we would not like to see a breach of 1,529, the low thus far in the corrective phase; but were there a breach, the potential for a full 30% decline from the high, similar to that of 2008, could carry toward 1,400.  Such an event would extend the repair process for Gold out in time.  One might expect Gold in the long run to continue to benefit from a structurally weaker dollar, as a result of the money printing, particularly if the dollar proves weaker than other currencies.

KWN note:  It’s a fascinating chart above which Louise had described in her last commentary as the “saucer.”  What she suggested in December was that it was possible gold may need a bit more time to consolidate.  This may create or require symmetry between the left and right hand side of the saucer (note the saucer she has drawn on the above chart underneath gold’s consolidation.

Yamada’s December note on KWN:  “From a symmetry perspective, and assuming the consolidation holds to carry an ultimate upside resolution, there may need to be further consolidation to the right of the 2012 lows, equivalent to that on the left of the low.  That would carry an extended consolidation through the first quarter of 2013 before price finally might rise to address the 1,800 level with enough strength to penetrate.” 

So far her December comments are precisely what we have seen in the gold market.  Regardless, the longer gold builds a base here, the bigger the ultimate move will be.  There may be some short-term shenanigans going on in the gold market, but as long as those key levels Yamada noted hold, the gold market is just fine.  When gold finally breaks that $1,800 level she mentioned in her December note, you will see a violent move to the upside in gold.

As Managing Director and Head of Technical Research for Smith Barney, Louise was a perennial leader in the Institutional Investor poll, and was the top-ranked market technician in 2001, 2002, 2003 and 2004, before going independent.  To subscribe to Louise Yamada Technical Research Advisors, LLC ("LYA") CLICK HERE.

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Eric King

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© 2013 by King World News®. All Rights Reserved. This material may not be published, broadcast,

rewritten, or redistributed.  However, linking directly to the blog page is permitted and encouraged.

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