09 February 2016

Gold: A Closer Look At The Potential 'Cup and Handle'

Here are the possible outcomes for the current 'rounded bottom' for spot gold.

If it has a retracement that successfully returns to set a new high for this leg of the market we will have a successful handle and the formation is activated.

However, it is also possible that there will be little to no retracement, and that gold will pause, backing and filling its recent gains, and then break out higher.  This would be just a rounded bottom, with a similar measuring objective but a slightly lower probability and a greater risk of a later correction as weak hands are shaken out, most likely in March.

Or it could just break down from here.  Gold is a very manipulated market, because it has been traded like a virtual currency lately, rather than a commodity money.

The commodity aspect of this market is going to wreak havoc at some point if this continues unabated, because unlike the Dollar the Federal Reserve does not own a gold printing press.  Although the banking system has been doing yeoman work in ginning up synthetic gold through their highly leveraged derivatives.

The astute will notice that I have essentially listed most of the possible outcomes here.  How could I not?  The trick is not to use a system to predict the exact outcome well ahead of time.   That is a good way to go broke, unless you are just selling the information to others.

No, never has an aphorism been more true that that of Walter Bagehot's, that 'life is a school of probability.'

Most want to hear exactly what will happen, and not only that but exactly when, maybe with a few days leeway.

No one knows that sort of thing, and if they did, they would not sell it to you.   There are those who have made about twenty or more tremendous predictions for a bottom in gold over the last 24 months, and one day they may be right.

And the apologists and trolls for the status quo in a corrupted market have made an equal number of more calls for gold's doom, and have done so even as it ran initially from $250 to $1850.  And quite of few of them were broken by that run, and were even whipsawed, and so nurture an abiding discontent for gold and silver, as if these venerable metals take any notice of it.

There is nothing wrong with talking about this sort of thing, and pushing back and forth on opinions, some informed and many others not.  But it is a dangerous business to actually put your money to work on this sort of basis, because you may find yourself exhausted both emotionally and financially when and if the market actually shows its hand.  And it will.

No, our job is to assess the inputs and lay of the land, understanding what is determining the price, and the various supplies and demands and what drives them, and then to learn what to watch for and to properly assess the probabilities.  And of course that is just the beginning because one has to learn discipline and money management, and the tuition for that course in life learning is rather high.

So let us continue to allow the market, and especially the analysis of the underlying stock of gold inventories and mining production, and the ebbs and flows of the currency war, the times being what they are, to inform us.