Gold $1,864 Spot

Well... Hardly trading ever since March 11's triple disaster in Japan of earthquake, tsunami, and broken nuke reactors at Fukushima (which turned my regular finance blog into Fukushima disaster blog) and simply sitting on gold double-long ETN has proven to be the best-ever strategy for me.

I have DGP, which went from about $40 in mid March to $67.61 today (August 18). My target has long been met without me even noticing it (it was somewhere around $52). Now that gold is in an uncharted territory (all-time high) and I'm yet to learn how to draw Fib lines forward, I'm using the Point and Figure chart to literally figure out my new target.

Looking at the chart, it looks like a break out from the pennant on a long pole. The length of the pole is $18, and the bottom of the pennant where the breakout has taken place is $62. The target would be $62 plus $18, equaling $80. That would translate to gold slightly over $2,000.

Not very far, is it? I will probably continue to sit on my holding as I see no reason to sell anything related to gold in the market environment like we've been having. I didn't even notice that the US stock market was tanking until about 2 weeks ago, but I'd better watch out for the entity who issued this ETN: Deutsche Bank (DB). I hope the German government will support the bank even in euro turmoil (or death dance).

(If hoping is not good enough, putting DB may work.)

Gold Is Finally Breaking Out!!??

Today (9/8/09), Barrick Gold Corp. (ABX), the world biggest gold producer, announced that it plans to eliminate all of its gold hedges and raise $3 billion in a share offering to help pay for the move, as gold breached $1,000 mark. (AP News link is here.)

Barrick Gold will join Newmont Mining in having their gold positions totally unhedged. They clearly see a plenty of upside and little downside in gold, going forward.

Gold went up to $1007 today, only to reverse back to where it started the day at $995, making the daily candlestick "gravestone doji", a reversal signal. However, I'm not too worried about short-term reversal, because I continue to like what I see longer term. Gold has to correct over 25% from here to get to my cost basis (I have DGP, double-long gold ETN), and like Barrick Gold's CEO I just don't see it happening.

This is Gold continuous contract, 3-year weekly chart. I tend to see the huge reverse head and shoulders formation that has taken 18 months to form. On shorter time horizon (since March this year), I see "ascending triangle pattern". Both patterns share the same neckline. Short-term, a break from the "ascending triangle" would be around $1160 (widest distance in the pattern plus neckline). Longer-term, a break from the "head and shoulders" would be $1320 (head height plus neckline).

However, gold doesn't necessarily move based on technicals. China is calling back its physical gold holdings from London to store them in a newly constructed vault in Hong Kong. It recently allowed its citizens to own and trade physical gold, and is planning gold ETF based on their gold holdings. I suspect gold's huge jump last week was at least partly in response to the news from China. Gold has a potential to break even further up, beyond technicals.

Gold

One of the non-performers in my holdings is the gold double-long ETN, DGP (the other non-performer being another ETN, oil double-long DXO). I purchased the stock during October-December period. My average cost is about 5% below today's price, so I haven't lost money but haven't gained much either. With all the financial market turmoil and capital dislocation, gold has not performed as many gold bugs hoped for. It's been a dead money, so to speak. The gold spot price is currently $897.

It seems many people love to hate gold. When the price goes up, they say "Oh it's a head-fake, good time to short". When the price goes down, they say "Gold as money is such an archaic concept, not relevant in modern world".

I'm planning to hold on to this stock (or I may switch to GLD so I can write call options against the holding) and I'm prepared to double down if it goes down to November low, as I am scared of the monetary base growth and the ever-growing size of Fed's balance sheet. But just in case, I took a look at the chart of GLD (gold ETF). It looks to me like a W-bottom with a handle. And I'm pretty OK with the current setting, as long as the handle-low holds.

Potential move down for gold this week is Treasury auctions. So far, the "safe haven" play is a battle between Treasuries and gold. This is from Yahoo Bond Ticker on Monday:

"Today the market absorbed a $40 billion sale of 2-yr notes, a $29 billion sale of 3-month bills, and a $28 billion sale of 6-month bills. The Fed took a small step to offset the increased supply with a $7.025 billion purchase of securities with maturities ranging from September 2013 to February 2016.

"Tuesday's auction calendar will be highlighted by a $35 billion sale of 5-yr notes. That auction, the swine flu fixation, and the economic data are expected to be the drivers of Tuesday's trade, but the order of their importance is indeterminate at this time."