Gold And Oil On The Verge Of Something Big – Hero’s Rarely Win

Everyone has been calling for a bottom in Gold the last year. But the fact is that gold and gold stocks are still clearly in a bear market. Just look at the 200 day moving averages. The previous trends were down and prices have been moving sideways for the past year.

A lot of newsletter and analysts are calling a bottom. Technically it’s just a consolidation pattern. Consolidation patterns are a continuation pattern, meaning if the previous trend was down, which it was from 2011 till now, the odds favor price will continue lower after this consolidation.

goldbear

If this consolidation does happen to be the bottom then we can classify it as a stage I base. Gold and gold stocks will start a new bull market, but price needs to break to the upside of this consolidation pattern. Until it breaks to the upside, it is still in a down trend.

Gold topped out over three years ago. And I am in no rush to try to pick a bottom and be a hero here. I’m just going to continue waiting on the sidelines until price confirms either a new bull market has started or for price to breakdown and we get another leg lower.

 

Oil Outlook

Taking a look at the big picture of crude oil the chart looks bearish. It too has been trading in a range since 2011 and the price is nearing the apex of a consolidation pattern.

oilbear

It’s important to know that a pennant formation which is what crude oil has formed are the most predictable when price breaks out of the pattern within the first 1/3rd of the formation.

The longer price consolidates and gets squeezed into the narrowing apex of the pennant pattern, the more unreliable. The trend breakout will be, and it becomes at best a 50/50 bet.

Crude oil’s previous trend was up, but it’s been consolidating for such a long time that price is now squeezed into the apex. This negates that bias for the previous trend to hold true so we have no idea which why it will breakout but when it does expect an explosive move.

A breakdown in crude oil will send price to the $70 or $75 per barrel range, and that will hammer on the Canadian dollar also. I can see $1 USD being equivalent to $1.20 Canadian in a year.

My Gold and Oil Conclusion

Looking at the US dollar, it has been rising partly due to the euro falling. This strong dollar will put a downward pressure on commodities overall.

Automated Trading System

Gold and oil have not been that exciting for investors since 2011 when they topped out, but both are setting up for massive moves that should last month, if not year or more. Once these new trends emerge expect to see them in the headline news every hour.

It does not matter which way these commodities breakout of the consolidation patterns. With the dollar continuing to rise and the bearish chart patterns for both gold and oil there is a good chance much lower prices are ahead.

This will catch most investor’s off guard. It’s human nature to try to predict tops and bottoms in the market. But this is why most investors get caught on the wrong side of the market. The market always has a way of catching the majority of people on the wrong side of a position.

I am happily sitting in cash with some of my investment capital waiting for gold and oil to breakout of these large patterns. I would not be surprised if we see $900 gold, gold stocks like the gold bugs index $HUI to be at $150, and $70 per barrel for crude oil. I am not saying this is what I want, but you should be mentally prepared so you can get back into cash position and so you can take advantage of falling prices with me.

Big money will be made on the next price movements in these commodities. Whether we have to go long the market or short sell the market. Either way, we can make money. So don’t be a hero and try to pick a top or bottom, just wait for confirmed breakout then invest with the trend.

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Charting your way to financial freedom,

Chris Vermeulen

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Comments

Chris Vermeulen 10 years ago Contributor's comment
I could really care less why gold moves. Only price pays, meaning we need price to move in our favor. So just focus on price, and follow it/trade with its direction. Arguing over what it does what it does, no one can answer with 100% certainty, so why argue over it? Market/world is corrupt/manipulated. It always has been, always will. not much has really changed. Seems to be everyones scapegoat for pointing fingers why they keep losing money.
Moon Kil Woong 10 years ago Contributor's comment
1) It is amazing how gas prices are holding up even as oil per barrel is dropping. This has been a big catalyst to prevent runaway inflation. 2) The US dollar is not rising on strength but foreign conflicts and problems. Even so, foreigners continue to dump bonds forcing the Treasury and US citizens to buy them. The simple fact is if his accelerates the US is in trouble as well. 3) Gold is indeed consolidating. It amazes me how pundits say a strong economy is bad for gold as well as a weak economy is bad for gold. Give it up guys. I think gold is found a trading range and it is hard to tell which way it will go when it breaks out. Given Comex gold holdings are not looking very good and China is trying to get in on the gold exchanges, we may find a world where it is less easy to manipulate gold but a world where a lot of exchanges are minting unbacked paper gold as lies just like before the world exited the gold standard which leaves a question. Just how much better and divorced are we from gold in reality? In reality every developed nation keeps about 1-3% reserves in gold and governments refuse to give up their reserves even when they go broke like Italy. Likewise, governments use it to issue gold paper to the point it backs more than it actually has and refuses ever to give up its gold making the backing as suspect as the past. Gold continues to be a commodity used to perpetrate huge fraud for governments. This is not any dark covert plot or insidious manipulation behind the scenes. It is much too obvious to be that. It is governments making money whatever way they can because laws don't apply to them until they utterly collapse like they have before. Then since everything is hell in a hand basket they just start all over again and blame it on fate. But Fate has little to do with it. It is intrinsic in nature and way too obvious and repeated to be an act of god.