Gold has been under selling pressure since early December. That powerful drop and the chart pattern it has formed will generally resolves itself after an ABC retrace pattern. I have drawn this on the chart which is what I think will happen in the near term. This daily chart of GLD ETF has a small 4 day bear flag and bearish reversal candle which is pointing to lower prices in the near term.

We continue to wait for new low risk setups as different investment scenarios unfold.

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Chris Vermeulen

Gold is in a strong bull market but the short term charts have provided over 13 short trades in the past 2 weeks for futures traders playing the bounces to resistance levels. The triangle on the 60 minute chart with declining volume is a continuation pattern of the short term trend which is down.

Because gold is trading near a support level on the daily chart, I am waiting patiently for a perfect setup to go short, or long depending on what happens in the coming hours. I predict lower prices with $102 area for the next support level.

Let’s continue to focus on these short term charts to take advantage of any low risk setups which come our way.

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Chris Vermeulen

www.TheTechnicalTraders.com

Scott Redler of T3Live.com

We recently reentered the gold trade with an average price of $110.44 on the GLDs after having exited our year long position on 12/3. If GLD can get an hourly close above $111, I will add yet another tier–approximately $1,140 in the commodity itself. Take a look at the chart below for a visual depiction of the trade.

FREE Analysis For GLD Here

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And forthwith, the oracle speaks. The much awaited 2010 Commodity Outlook is out. Here is the 2010 summary breakdown:

Some commentary:

As we start a new decade with the global economy emerging from the worst recession of the post-war era, we expect the commodity supply-side constraints of the past decade to once again reemerge, reinforcing the sustainability of higher long-term commodity prices – a theme we first began discussing at the turn of the current decade. However, the inability to grow supply after a decade of sharply higher prices turns the question of the sustainability of higher long-term commodity prices into one of the sustainability of higher long-term growth. Anemic supply growth of energy and basic materials runs head-on into the ongoing revolution in emerging markets generated by more than a billion people rising into the ranks of the middle class over the next decade.
We maintain that this undesirable outcome is not the inevitable result of dismal Malthusian logic, but rather the result of deliberate choices as expressed through policy. At the beginning of the current decade, we argued that decades of inadequate investment in commodity productive infrastructure were leading to a “Revenge of the Old Economy”, where a constrained supply base would sustain higher commodity prices. Toward the end of the current decade we argued that the “Revenge of the Old Economy” had turned into the “Revenge of the Old ‘Political’ Economy” where significant policy constraints on the free flow of capital, labor and technology were substantially constraining supply growth for many commodities, regardless of price or expected return. Furthermore, these protectionist policies caused capital not to flow to the most efficient commodity investment but rather to the most freely accessible one that was usually inefficient, extremely high cost/tax with poor rates of return, which put more upward pressure on prices, or in some cases the capital did not flow at all, creating outright physical shortages.
But not all commodity markets finished the decade supply constrained. Impressive supply growth in several key commodities in recent years proves that many of these supply-side problems can be alleviated through well aimed policy that motivates investment in resource constrained sectors. For example, the ability to freely invest in US domestic natural gas production has led to the technological breakthrough of unconventional shale gas plays, which has created a global glut of natural gas. In addition, investment in petroleum refineries and ferronickel pig iron technologies has led to sharp declines in petroleum product cracks and substantially lower nickel prices.
Moreover, in many of these cases, policy served to encourage rather than to discourage investment. For instance, while the United States and Europe opposed petroleum refinery investments owing to environmental concerns, India incentivized this investment through tax breaks, but maintained strict environmental standards, creating a “nearly zero-emission refinery” that uses state of the art technologies with a cost basis that has even driven some less sophisticated western refineries into closure.
Overall, these developments suggest three emerging themes that are likely to continue to dominate in 2010 and beyond:

1. Differentiation between commodities driven by the extent of supply constraints that will likely drive greater price dispersion across the commodity complex;
2. Resource realignment as emerging markets are forced to bid away scarce commodities from the developed economies, especially when supply constraints are more restrictive, which shifts the focus away from the sustainability of higher prices and towards the sustainability of higher growth;
3. Increasing macroeconomic correlations as resource realignment will likely increase the relevance of commodity prices and supply to the broader macroeconomic environment.

Differentiation between commodities driven by the extent of supply constraints will likely drive greater price dispersionOver the past decade a substantial amount of investment and technological innovation has taken place across the commodities complex with widely varying degrees of success. As we emphasized at the beginning of this decade, it was precisely this uncertainty in the success of different technologies that generated a premium in commodity prices above the observed marginal cost of production.
During the first part of this decade, almost all technological advances in commodity production failed. In energy, oil sands failed to deliver owing to energy and water constraints, gas- and coal-to-liquids proved too costly, biofuels used too much land and drove up agriculture prices, solar parks proved too expensive and wind used up too much real estate. All of these problems made scaling up these technologies too difficult. In metals, environmental impacts restricted the widespread use of otherwise productive technologies, while in agriculture GMO was simply additive to Borland and hybrid technologies.
By the end of this decade, however, some of these failures started to turn into successes, such as the technological breakthroughs that occurred in natural gas and nickel, which started to create differentiation in commodity pricing, especially when the ability (or inability) to grow supply was matched against emerging market demand growth.
Overall, the more binding the constraints on investment and supply growth and the more leverage to emerging market demand, the stronger the commodity price recovery has been this past year and the stronger the outlook is into 2010 and beyond. In particular, natural gas, refined petroleum products, nickel, wheat and aluminum have all seen significant growth in production capacity and with the exception of aluminum all have limited exposure to emerging market demand growth. Accordingly, these commodities have experienced far more modest price recoveries and have a much weaker forward price outlook. In sharp contrast, crude oil, copper, zinc, platinum, corn and soybeans all have binding supply constraints with far greater leverage to emerging market demand.

In the past, these types of shortages were largely dealt with by intra-commodity substitution. This behavior generated fundamental tightness across the commodities and drove the commodity price convergence that has been a key feature of the markets over the last five years, making the consumer indifferent to the specific commodity. For example, corn could be used for transportation like oil, for power generation like gas and for material like aluminum, so if the prices of these commodities were the same on a Btu basis, we were indifferent to the commodity.
However, the nature of the current shortages limits the ability to substitute, suggesting the likelihood of increased price divergence in coming years. For example, we expect that the substantial disconnect between oil and natural gas prices will likely be sustained over the medium term. When natural gas was in tight supply, oil could be used as a substitute to natural gas in the generation of electricity. However, substitution in the other direction does not work given current installed technologies and infrastructure. In other words, oil can substitute for natural gas in power generation where it is predominantly used by combined cycle units that can burn both fuels, but natural gas cannot substitute for oil in transportation where oil is predominantly used without massive investment in infrastructure. The avenues to convert natural gas into an oil substitute are wide ranging but all very expensive – gas-to-liquids to turn natural gas into diesel, compressed natural gas (CNG) as a direct automotive fuel and electric cars. Until these investments are made or the gas glut is resolved, which is unlikely in the next three to five years, natural gas is likely to trade at a steep discount to oil.

And while you can read the oil propaganda on your own (maybe just pull the summer 2008 report: same shit, different day), here is what Goldman had to say on Gold.

With the US Federal Reserve expected to keep its short-term nominal interest rate target near zero through 2011, we expect the low US real interest rate environment will continue to provide strong support for gold price in 2010 and 2011. However, as we also expect US inflation to remain subdued, we expect that gold prices will come under significant downward pressure once the US economic recovery strengthens and the US Federal Reserve begins to raise interest rates. Consequently, an earlier than expected tightening of US monetary policy is the primary downside risk to gold prices in 2010 and 2011, in our view. In the interim, however, we expect the low US real interest rate environment, continued gold-ETF buying and reduced Central Bank gold sales will allow gold prices to continue to move higher. Consequently, we raise our gold price forecasts to $1200/toz, $1260/toz and $1350/toz on a 3-, 6- and 12-month horizon, respectively, with a 2010 average price forecast of $1265/toz and a 2011 average price forecast of $1425/toz. While an earlier than expected tightening of US monetary policy presents a substantial downside risk to gold prices in 2010 and 2011, we believe the near-term risk to our gold price forecast is skewed to the upside.
While gold prices denominated in US dollars continue to march steadily high, looking at the price denominated in other currencies is a healthy reminder that gold prices remain creatures of their financial environment. For example, Australian dollar denominated gold prices peaked on February 20 of this year at 1563 AUD/toz and are currently 17.5% off of their highs. Meanwhile euro-denominated gold prices have only recently returned to their February 20 high of 789 E

While Exhibit 32 highlights the view of gold as a currency, we continue to believe that the impact of the financial environment on gold prices can best be understood by viewing gold as a commodity. As discussed in detail in our March 25, 2009 Commodities:

Frameworks: Forecasting gold as a commodity, US dollar-denominated gold prices are driven by different market fundamentals over long, medium and short horizons.

• Long-horizon: Over long horizons (often more than a decade), the price of gold keeps pace with inflation. In 2008 US dollars, the long-run price of gold is near $420/toz.
• Medium-horizon: Over medium horizons, the real price of gold fluctuates around its long-run price: pricing higher in low US real interest rate environments and lower in high US real interest rate environments.
• Short-horizon: Over short horizons, fluctuations in the monetary demand for gold, notably gold-ETF buying and government central bank selling drive the price of gold relative to its medium-term real interest rate equilibrium.

This implies that the outlook for US inflation and interest rates is the key determinant of gold prices in the medium to long term. Our US Economics team expects that a slow US economic recovery will keep inflation rates low in 2010 and 2011 and lead the US Federal Reserve to maintain it short-term nominal interest rate target near zero. In our view, this has two important implications for gold prices in 2010 and 2011.

• A continuing low US real interest rate environment will likely allow gold prices to continue to rise higher in 2010 and 2011.
• The widening gap between current gold prices and their long-run inflation-adjusted average price of $420/toz combined with a benign US inflation outlook suggests that when the US economy strengthens and the US Federal Reserve tightens its monetary policy, the convergence of inflation-adjusted gold prices to their long-run average in a rising real interest rate environment will likely come through falling nominal US dollar denominated gold prices, not inflation.

This suggests that for the gold investor, US dollar-denominated gold will likely continue to rise in the expected low real US interest rate environment of 2010 and 2011. However, the widening gap between current gold prices and their long-run inflation-adjusted average price of $420/toz combined with a benign US inflation outlook suggest that an earlier than expected tightening of US monetary policy is the primary downside risk to gold. In short, we expect that the gold price-real interest rate cycle will turn when the US Federal Reserve begins to raise interest rates, but do not expect that to happen this year or next.
A continuing low US real interest rate environment will likely allow gold prices to continue to rise higher in 2010 and 2011
Gold prices have continued to drift higher since a surge in net speculative long positions first pushed prices through the $1000/toz mark in September (Exhibit 33). This surge in net speculative length preceded a decline in US real interest rates, with the yield on 10-year US Treasury Inflation-Protected Securities (TIPS) falling more than 50 basis points to 1.20%, highlighting the strong relationship between US real interest rates, speculative positions and gold prices (Exhibit 34).

The ongoing decline in the 10-year TIPS yield has been suggesting ongoing upside risk to our gold price forecasts, which were based on the view that yields would move back closer to 2.00% as the economy emerged from recession. However, with the US Federal Reserve expected to keep its short-term interest rate target near zero through 2011, with US inflation expected to remain low and with 10-year nominal US Treasury bond-yields expected to range from 3.00%-3.25% in 2010 and only reach 4.00% in 4Q2011, we now expect that US real interest rates will remain near current levels at least through the first half of 2010 (Exhibit 35). With current US 10-year TIPS yields near 1.10%, this would imply a medium-term gold price of $1350/toz, if Central Bank sales were strong enough to offset investment demand (Exhibit 36). However, we expect that the buying from the gold-ETFs will continue to outweigh Central Bank selling over the next two years, leading us to expect gold prices to move even higher.

An earlier than expected tightening of US monetary policy presents a substantial downside risk to gold prices in 2010 and 2011
While movements in US real interest rates have dominated US dollar-denominated gold price movements in recent months, the increasing gap between current gold prices and the long-run average inflation-adjusted price of gold requires one to think about how the price of gold will converge to its long-horizon equilibrium when the US real interest rate environment begins to normalize. More specifically, the long-run inflation-adjusted price of gold is roughly 420 USD/toz in today’s prices (Exhibit 37). To return to this equilibrium, either US inflation must rise dramatically – a three-fold increase in US consumer prices – or we must expect a sharp decline in nominal gold prices when US real interest rates rise back toward more normal levels. Given our US Economics teams view that US inflation will likely remain subdued, falling to a rate of only 0.3% in 2011, this convergence must come from falling nominal gold prices.
Consequently, the key question for the gold investor becomes when will US real interest rates rise, pushing gold prices back towards their long-run average levels? In our view, US real interest rates will rise when US economic recovery strengthens and the US Federal Reserve begins to tighten US monetary policy, raising its short-term nominal interest rate target. The last gold price spike in the early 1980s ended as the dramatic tightening of US monetary policy under Chairman Paul Volcker drove US real interest rates dramatically higher and drove gold prices down substantially (Exhibit 38).

In the interim, the balance between investor buying and central bank sales suggests that the balance of gold price risk remains skewed to the upside

Buying by the gold-ETFs surged during the first four months of 2009 by 13 million toz, far outpacing the total 2008 total of 8 million toz (Exhibit 39). Since this initial surge, ETFs inventories have remained stable and we expect ETF buying to revert to its long-term pace of 6 million toz per year. However, we see upside risk to this assumption. Over the past decade total overall gold investment demand, including bar hoarding, coins and gold-ETFs, has averaged 11 million toz per year. Given the growing size and popularity of gold ETFs, they now represent a larger portion of this total investment demand suggesting a potential shift higher in investment flows. Should the buying from gold-ETFs continue at this faster pace of 11 million toz per year, we would expect gold prices to rise to $1,400 /toz by the end of 2010 and over $1,550/toz by the end of 2011.
Although central banks have historically been net sellers of gold, we have witnessed a significant slowdown in the pace of sales since 2008 with the latest data suggesting an outright halt in aggregate sales. Compared to the late 1990s when many central banks viewed gold as a low-yielding asset and their gold sales put downward pressure on gold prices, the more recent movement among central banks is to view gold reserves as an important source of diversification away from the US dollar in their reserve holdings.
Furthermore, emerging market central banks have explicitly stated their intentions to gradually diversify reserves into gold as well as currency reserve assets other than the US dollar. From a positioning point of view, Asian nations as a group hold only a small percentage of their reserves in gold vs. the major European nations holding more than half their assets in gold (56% as of October). China, for example, holds only about 1.49% of its reserve assets in gold and surprised earlier this year when it announced that it had increased its gold holdings by 76% since 2003 to 1,054 tons, mostly from buying from their domestic mine production. Similarly, only 4.7% of Russia’s reserves are in gold and it has stated its intention to increase its gold holdings and has done so by 19% this year alone. Furthermore, the recent announcement that India was to purchase 200 tons of the 403 tons of gold the IMF plans to sell has substantially reduced the outlook for central bank sales in 2010 and 2011. Net, we expect selling by central banks and other official sector institutions to remain near subdued, less than 100 tonnes per year on net (0.25 million toz per month, Exhibit 40). Should Central Banks continue to be net buyers of gold in the next two years, the upside risk to gold prices would be considerable.

With gold-ETF expected to buy 0.25 million toz per month more than the central banks sell on net and with US real interest rates expected to remain depressed near current levels at least through the first half of 2010, we raise our gold price forecasts to $1200/toz, $1260/toz, and $1350/toz on a 3-, 6-, and 12-month horizon, respectively, with a 2010 average price forecast of $1265/toz and a 2011 average price forecast of $1425/toz (Exhibit 41). While this represents a 12% move to the upside in the next 12 months and a 20% move to the upside in the next 24 months, the last time US real interest rates declined to these low levels on a sustained basis was in the late 1970s, gold prices spiked to $1870/toz in today’s US dollars in January of 1980. While we view an earlier than expected tightening of monetary policy by the US Federal Reserve as the primary downside risk to gold prices in 2010 and 2011, we see the balance of risks as remaining skewed to the upside.

Resource Reallignment

Skip to about the 7:45 mark to hear Rick Santelli say, “Central banks have to be petrified about gold going to $2,000! Didn’t Larry Summers write a paper saying that central banks have to keep a lid on the price of gold for obvious reasons?”

It keeps getting more and more interesting with nary a hint of the gold price faltering.

Recent third quarter data from the World Gold Council showed that while gold supply fell 5%, demand (inclusive of investors) fell a much larger 34%.

Yet despite this negative disparity between supply and demand change, gold prices rose during the period.

Hard Assets Investor: Year-over-year demand has dropped in each of gold’s three market segments: for investments, off 46 percent; for jewelry, down 30 percent; and for industrial use, off 11 percent.

Gold prices, however, have risen universally. In key markets such as India and Turkey, gold prices spiked 15 percent and 33 percent, respectively. In dollar terms, gold rose 12 percent year-over-year, while euro prices rose 11 percent.

The bull market may have put gold out of reach for many consumers. That may account for some of the renewed interest in “the poor man’s gold”—silver.

Read more here.

by Jeff Clark, Senior Editor, Casey’s Gold & Resource Report

“There’s no doubt in my mind that we’ll have a mania in gold. And because the gold and especially silver markets are so tiny, the rush into them will be like trying to push the contents of Hoover Dam through a garden hose. Our positions will go absolutely ballistic.” –Doug Casey, September 2009

Dear Readers,

Elmer Sutton’s eyebrows shot up when he saw the ad proclaiming gold stocks might make you wealthy.

It sounded like the perfect solution for his stock portfolio, loaded with investments going nowhere. He vaguely recalled hearing a little about gold, but if what the ad said was true, he thought he could make a killing.

So he called the broker and made an appointment for the next day. The broker seemed very knowledgeable and took the time to explain why he felt gold stocks were one of the best investments right now. He said this was not a get-rich-quick scheme, but that if you stuck with it, you could see potentially enormous profits. It sounded good. Elmer wrote a check for $2,500, and the broker bought three gold stocks for him.

The very next day, gold took a big drop and his spankin’ new gold stocks sold off hard. Not only that, there were riots in South Africa, where one of the companies was located. Elmer was instantly disgusted. He was losing money yet again. This time, however, he’d play it smart and get out before he lost it all – something his wife made sure he understood – so he hastily called the broker and told him he wanted his money back.

“Elmer, you can’t do that,” the broker told him. “This isn’t Woolworth’s.”

“I’m not buying them!” he yelled to the broker and slammed the phone down. Elmer wanted out, and that was that. He wasn’t about to lose any more money in the stock market.

Three years later, long after he’d forgotten about that broker, newspaper headlines were screaming about gold. Everyone at the party Elmer attended the night before was talking about how well their gold stocks were doing. His co-workers bragged about the good deals they were getting buying gold and silver coins. Everyone was talking about precious metals.

Elmer panicked; he didn’t want to be left behind. He scrounged around the house until he found the original confirmations of the trade he’d broken with “that broker”: 1,500 shares of Grootvlei at 35¢, 500 Anglo American at $2.50, and 1,000 Leslie at 50¢. He grabbed his newspaper and saw that Anglo was up 500% since then, and the others were paying dividends – this year alone – totaling more than he would have paid for his shares in 1976.

As the newspaper went limp in his hands, he had a vague recollection of the broker he met with and quickly tracked down the phone number. “I want to buy some gold stocks,” he breathlessly panted to the secretary answering the phone. She said the broker wasn’t in, and that while they would be happy to buy a stock for him, they were actually recommending investors sell their gold stocks.

Elmer couldn’t believe it. How ludicrous! Everyone he knew was buying, and he was personally acquainted with many people who were getting rich. He pushed on. “Look, everyone’s into gold right now. It’s on the front page of the paper, for crying out loud. So I want to buy some gold stocks right away.”

“That’s fine, sir, but I think you should talk to the broker first,” the secretary replied. “We really don’t recommend you do that.”

“I don’t care!” Elmer screamed, which he didn’t mean to do, but panic was setting in. “What’s this clown’s name anyway?”

“Doug Casey,” she replied.

Please Don’t Crowd the Emergency Exit

This true story explains how Doug Casey bought gold stocks at the very bottom of the market, as he took on those abandoned shares from Elmer. But today’s lesson underscores what Doug Casey saw back in the late 1970s: there’s certain to be a rush into gold and silver, and buying before Main Street catches gold fever is the only way to play this trend.

Because when Midas fever hits, prices will explode to the upside, for both the metals and the stocks. How do we know that?

First, let’s look at gold. If we added up all the gold ever mined on the planet, its total value would equal no more than $5 trillion at today’s prices. Yet, look at how this compares to the debt and bailouts and other monetary mischief of current governments…

*MZM (Money of Zero Maturity) is a measure of the liquid money supply in the economy. It consists of coins and currency, checking accounts, savings deposits, and money market funds.
**Year to date figures.

Let’s make this chart very clear. Of the $5 trillion in gold ever mined…

• The U.S. government has thrown over twice as much at the economy in the past 12 months.
• The U.S. debt is more than double this amount so far this year.
• Total global government bailouts are almost four times larger (and this is a conservative figure; one estimate puts it at $24 trillion).

I intended to include annual gold production as one of the comparisons, but the chart isn’t big enough and neither is your monitor: 2008’s global gold production equaled about $73 billion, and to make that figure discernable on the chart would require the Global Bailouts bar to hit the ceiling above your head. That’s how small the gold market is.

The implications are undeniable: when the greater public rushes into gold – whether in response to inflation, dollar woes, war, whatever – the price will be forced up by an order of magnitude.

[For an elegant and profitable way to own bullion gold, check out this website.]

A Picture Is Worth a Thousand Dollars

While physical gold will protect our wealth, it’s the gold stocks that can potentially make us wealthy.

Once again, to get a sense of the Lilliputian size of the gold industry, I compared it to several other leading industries and stocks.

The value, as measured by market capitalization, of all gold producers around the world is less than Walmart’s. Every gold stock would need to nearly double just for the industry to match ExxonMobil. The oil and gas industry is about 12 times bigger.

When your neighbors and relatives and co-workers and friends all start clamoring to buy gold stocks, the pressure on prices will be enormous, rocketing our positions upwards.

Meanwhile – and admitting we’re first and foremost gold bugs – the picture for silver is even more dramatic. The potential for silver stocks is jaw-dropping.

If the gold industry is tiny, then silver’s $9 billion market cap makes it a nano industry. The entire silver industry is over 21 times smaller than gold’s! If gold explodes, silver will go supernova.

Consider these macro-facts about a micro-market and what they reveal about silver’s enormous potential:

• There are over 200 companies in the S&P 500 with a market cap larger than the entire market of silver producers
• There are five times more gold stocks than silver.
• Total silver production in 2008 was valued around $10.3 billion (at today’s prices). That represents just 1.5% of the $700 billion bailout last year, and 0.006% of the current U.S. monetary base.
• Of the 20 largest silver producers, only five actually call themselves a “silver” company, due to the fact that about 73% of all silver mined is a byproduct of other metals mining.

Any flood into the silver market would overwhelm it. In other words, the rise will be stunning. While it’s not going to happen tomorrow, I strongly suggest you get on board before that rocket ship takes off.

Just putting these charts together stirred my feelings of restlessness, making me anxious for the mania in precious metals to arrive. But the timing is not up to us. Be patient, because if you’re invested in gold and silver and the respective, high-quality stocks, you’re on the right side of this trend.

Had you bought gold, say, four years ago, when it was around $450/oz, you’d be sitting on a nearly 130% gain. But you could have made up to three times as much with even the most conservative precious metals investments – large- and medium-cap gold and silver producers. It’s not too late to jump on the bandwagon. Click here to find out more.

We could start to see a shift between the price relationship between gold and the broad market. I pointed this out last week mentioning that gold and silver are starting to hold up in value while stocks sell off on big days. For example, Wednesday’s sell-off in equities did not have much effect on precious metals. This is what we want to see. It means money is moving out of stocks and into gold and silver bullion as a safe haven.

These three charts of GLD, SLV and GDX show Wednesday’s price action as gold and silver moved higher while precious metal stocks sold down with the rest of the market. This is generally a bearish indicator for gold and silver but because I am starting to see this happen more often and traders are ready for the market to top any day, I am seeing this as a bullish indicator. If the market starts to slide I have a feeling investors will be dumping a lot more money into gold and silver.

To receive my free trading reports, please visit my website: www.GoldAndOilGuy.com

Chris