Yesterday, Harry Schultz's Gold Charts R Us service offered technical reasons for a rebound. Looking at the weekly gold chart, it said it saw:
"A one-year reverse Head and Shoulders development, with $879.40 left shoulder support (being tested as we write) -- that also coincides with a 50% retracement of the October rally-leg. If bullion manages to hold around this level, the odds for shorter, higher highs will remain intact via the formation of a possible right shoulder and a fourth attempt to breach the psychological $1,000 resistance."
GCRU added that, if this doesn't work out, it expects "July 2005 uptrend line support, currently around $750."
GCRU concluded cheerfully: "Don't let this gold dip dishearten you. Our patience and discipline will soon be rewarded by a new golden sunrise."
The underlying reason for this cheerfulness is not technical but fundamental. There is disturbingly universal expectation among gold-watchers that Federal Reserve monetary expansion must blow off into inflation.
The Pamela and Mary Anne Aden's Aden Forecast is typical, commenting recently:
"Gold is the ultimate inflation hedge, and there's no telling where it'll end up, at least well into the thousands of dollars in the years ahead, and maybe sooner. ... Remember, gold's peak in 1980 at $850 is now the equivalent of about $2,200 in today's dollars. Gold has not even approached that level yet. Once the dollar declines again and inflation kicks in, it'll be another story."
And how many thousands of dollars? The Aden sisters write: "Using the gains in the 1970s as an example to forecast where gold could end up ... $5,800 would be the equivalent upside target."
Short term, they write in chartspeak:
"A 'B' decline is still underway, and if gold closes below $883, we could see $705 tested. Any weakness like this would provide a wonderful buying time. ... On the upside, once gold rises and stays above $945, the B decline will be over and a C rise will be underway. Once gold closes above its year-ago March level at $1,004, we could see gold jump to possibly $1,200."
This optimism is no longer confined to the investment letter fringe. John Reade, the respected non-gold bug London-based chief metals strategist for UBS, wrote:
"Based on the conversations we continue to have across our client base, gold remains something that investors are looking at with unprecedented interest, although participation levels remain lower than the interest would suggest."
"But the reasons why investors bought gold -- fears of longer-term inflation and currency debasement -- remain intact, and we see no reason why investors will not buy gold in very good quantities at some point. ... once the correction has run its course and gold has stabilized, we expect bottom-fishers to begin the next cycle of investment."
More depressingly, Reade dismissed a gold-skeptical comment in the London Financial Times by expressing skepticism about stocks: "We have no doubt that if equity, commodity and property markets are set for a sustainable rally from current levels, then gold would indeed lose its luster. But unfortunately we believe that the recent rally in risk assets, which has seen U.S. equities post their biggest four-week gains in 70 years, may be running out of steam."
Oh.
Then there's veteran Bill Meridian of Cycles Research, one of the few editors who admit to using astrology -- openly, that is. ( See March 9 column.) He writes with remarkable confidence:
"Gold has retraced 38% of its prior advance. This is a quite normal pullback in a bull market. ... Gold is likely to trade down into April 2nd-3rd, pop up again, and then make a firm low on the 10th or 13th. On those latter dates, Cycles Research will switch to a buy signal."
Meridian appears to have made this particular prediction on a cycles theory.
But looking at the stock market, he writes: "Note that the full moon falls on the morning of April 9th. Some of the biggest moves recently have occurred on lunations. Thus the 9th is likely a big daily move at the end of a week-long rally."
