Gold and the XAU took another hit following the
Bank of England’s (BOE) disappointing 25 ton auction that took place on
Monday, 11/29, when the Dutch Central Bank (CB) announced on Monday that
they intend to sell into the market 300 tonnes of their own reserves. This
was what we think is the last piece of the puzzle of the central bank
sales to be made under the recent agreement of the 15 EU nations, totaling
a maximum of 2000 tonnes over the next 5 years, or 400 metric tonnes per
year (1 metric ton is equal to 2,204.62 pounds). The Dutch CB plans to
sell the first 100 tonnes into the market as they see fit, with no further
telegraphing to the market, and then the remaining 200 tonnes would be
sold into the open market over the next 4-5 years.
The markets initial reaction was to continue the
sell off that had already been in force since the BOE’s last auction. We
think that the Dutch announcement has a better than average chance of
marking the bottom of the decline with yesterday’s strong rebound.
It is hard to see it on the above chart, but
Monday’s news caused the XAU to gap lower on the
opening, at 63.65, against Friday’s 64.89 closing price. Tuesday morning’s
sharp rebound in the gold futures helped the XAU to gap
open at 64.17, against Monday’s 63.84 closing price. This created a
relatively rare, and very bullish technical formation called an island
reversal, as the chart shows the brief price low separated on
the downside and then as it gapped back up.
We think it is especially a notably bullish omen
as it happened to also mark the bottom of a very clearly sub-divided 5
wave decline from the 9/28, 92.72 high. This is labeled on the chart.
Helping to confirm this Elliott Wave Count are
the indicators at the bottom of the Daily XAU chart as prices moved
lower:
RSI -
became neutral, but never moved lower to confirm the last low made by
the index, before turning up.
2) Stochastics - You can plainly
see a higher Stochastics bottom against the lower price
bottom on the price
chart. These are marked with a downtrend line
beneath the XAU and an uptrend line drawn
beneath the Stochastics bottoms. This is
considered a bullish divergence as the indicator did not
confirm the lows made by the index.
Rate Of Change (ROC)
- This "histogram" chart indicator also shows a higher low
relative to the lower low
made by the price chart. This indicated that the
downside momentum was weakening as prices
moved lower and also represented a bullish
divergence by not confirming the price low.
There are other reasons to remain optimistic too,
but they are not relevant to this particular report. In sum, we believe
that it makes sense and indeed may become critical to be diversifying OUT
of equities and into alternative such as gold. I believe that it is much
more important to look at where prices may be heading in the future
instead of worrying about where they have been or come from. The point
here is that severely depressed gold equities may offer generally dramatic
value as an alternative relative to the dramatically overvalued prices
investors are willing to pay for other types of equities in today’s
overheated market. Trying to time an upturn in this out of favor group may
be difficult, but could ultimately be a worthwhile endeavor.
