Thursday, February 19, 2009

Gold Feb 18,2009.

Gold Feb 18, 2009.
At CastleMoore, we purchased gold a few months ago because we believed it to be in a long term up trend, and had just completed a short term correction within that up trend. The up trend began in 1999 or 2000 and ended last spring when it hit $1000 per ounce. The pull back took gold’s price down to around $700. We bought our current position just under $800.
One of our clients asked us if/when we would add to our position. This was my answer:

“Gold: To add or not to add, that is the question.
We struggled with this question earlier this week [Feb 16]. The conclusion we came to was: do NOT add at this time. And, if gold reverses, up to down, we will sell. We had hoped the up trend that began a few months ago would be a longer term up trend. But, it appears to be running out of steam. Short term momentum has gone parabolic. And sentiment has turned decisively bullish. And the price has reached resistance. This is a bearish combination. It looks like the up trend is almost finished for now.

The most bullish scenario would be for gold’s price to go sideways for 6 months, and then move above $1000. That would be a good reason to buy.”

For readers not schooled in technical analysis, here are a few explanations:
1. ‘Momentum’ is the price of something over time. Technical analysts plot these prices on charts and try to interpret the charts.
2. ‘Going parabolic’ means the rate of price increase is increasing. This shows us that speculators are being attracted to gold. Speculators come in near the end of an up trend.
3. ‘Sentiment’ refers to investors’ attitudes or mood toward the price of gold. Investors tend to be sceptic and negative at the beginnings of an up trend and optimistic and positive at the end.
4. ‘Resistance’ refers to a price at which gold had reversed from up to down in the past. In this case, $1000 was the biggest resistance and $970 was minor resistance.

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