Red-Hot Resources

"Luck is not chance, it’s toil; fortune’s expensive smile is earned.”

Monday, November 24, 2008

Great Looking Gold Chart!

We try to use technical analysis for forecasting, but it’s better used as a rear-view mirror. Here is a daily chart of gold by the numbers ...

#1 – the second part of a double-top. This signaled (in retrospect) gold’s upcoming, steep decline.

#2 – a pivot point. Measuring from 1 to 2, we get a retracement down to 720.

#3 -- 720 – which also happens to be the bottom of gold’s range.

#4 – the top of gold’s recent range. It has consolidated in a base since October 23rd, but has broken out of that range now.

#5 RSI, an oscillator that measures momentum. It is more bullish now than since any time since mid-September.

But what about the dollar? It’s usually on the opposite end of the see-saw of pain with gold. The US dollar is showing short-term weakness – giving a daily “sell” signal – but remains in a long-term, strong uptrend. If the US dollar does consolidate its gains by pulling back, the 83-84 area would be my target.

We are conditioned to think that gold and the US dollar have to move in opposite directions. But they don’t have to. Gold and the US dollar could both go higher if investors flee the major stock indices and look for safety.

It may see crazy talking about the investors fleeing stocks when the futures are up so much this morning. What is moving the market? The New York Times reports news on President-elect Barack Obama that is giving investors the holiday spirit ...

In the Democrats’ weekly radio address, Mr. Obama said he would direct his economic team to craft a two-year stimulus plan with the goal of saving or creating 2.5 million jobs. He said it would be “a plan big enough to meet the challenges we face.

Although advisers say they have not begun to fill in the details, Mr. Obama’s proposal would go beyond the $175 billion stimulus plan he proposed in October. That included a $3,000 tax credit to employers for each new hire above their current work force and billions in aid to states and cities.

Some Republicans might be won over should Mr. Obama decide not to repeal the Bush tax cuts for those making more than $250,000. By simply letting the cuts expire after 2010, as the law now provides, Mr. Obama would in effect delay the tax increase that high-income taxpayers would have faced in the next year or two under his original plan.
The rumor flying on the street now is that Obama will NOT repeal the Bush tax cuts. And that makes Wall Street very happy. They're all happy talk about Obama on CNBC now, when they were calling him a socialist just two weeks ago.

But if you look at Obama's political appointments so far, he's not progressive at all -- he's very middle of the road, and seeks a consensus.

Not to be the voice of misery at the party, but I will point out that our country and the world still has major economic problems that some tax breaks won't fix. Still, psychology is 90% of the market, and in the short-term, psychology should be bullish. We'll see how we end the day.
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