Wow – what a week it was in the world of Gold! After charging above $1,200 on the front-month futures contract earlier in the week, Gold finally finished the week on a very weak note, closing below $1,150, which was right above the low established a week earlier in the wake of the Dubai debt debacle. Clearly, Gold is beginning a trend reversal on a daily-based time frame, but the technical picture is less clear  over the long-term.  Let’s examine a weekly chart for GLD (one of the financial instruments that holds actual Gold) to get a better fix on what might be expected in this volatile market over the next month or so.

 
 Graphic credit: Metastock v.11

Before going any further, I must admit to being a Gold Bug, having been afflicted with this wonderful malady for many years – including the time period prior to the recent bull run in Gold from 2001-present.  Long-term, and given the abysmal long-term outlook for the US Dollar (and all fiat currencies for that matter), declining mine production (most of the high-quality, easier to mine deposits are used up already) and greater awareness among investors regarding the inclusion of Gold in their portfolios, I believe that Gold will easily make it to $2,500 to $3,000 at some point in the next five years, despite several massive sell-offs along the way to the eventual summit. However,  in the here and now, we need to also rely on our charts, technical indicators and COT futures market data (Commitment of Traders report, published weekly by the CFTC) in order to minimize losses and maximize gains by waiting for more opportune times to add to long-term holdings of Gold and/or to capitalize on high probability, short-term moves (up and down) that will likely commence from solid support/resistance (S/R) levels in the weeks ahead.

OK, now on to what the weekly chart of GLD is telegraphing to astute traders and investors here:

1.    $1,200 was a key Fibonacci extension/Keltner Band resistance area on both a weekly and monthly time frame; major turbulence was expected well in advance – thus the recent tumble came as no surprise to experienced technical traders.

2.    Note this week’s  wide-range weekly reversal candle, one that printed on extremely heavy volume (see circle at bottom of chart); this is a major reversal signal, especially for daily-based traders, coming in the wake of such a high profile resistance barrier($1,200).

3.    Look now at the short-term and long-term money flows (lower portion of the chart); both of  the Chaikin money flow indicators (CMF)(34) and (CMF)(144) are revealing pronounced negative divergences with the actual price trends of GLD, which means that the raw fuel  (money flowing into GLD and Gold) needed to drive Gold higher is beginning to dry up - for the time being.

OK, so what? What’s a trader and/or investor to do now, given this information? Well, if you’re a long-term Gold Bug, simply hold your core investment positions for the long-haul; that $100+ trillion US national debt/unfunded liability problem  ain’t paid off just yet (and likely will never be), so the future for Gold has never looked better, especially for those wishing to diversify out of the Greenback. Let this corrective move play out and trhen consider adding more at lower price levels - $1,050 might be one such a price zone, which happens to be the current 21-week exponential moving average (EMA) price for cash Gold. For those investing via shares in GLD, the area near $104 also coincides with its own 21-week EMA. More cautious investors might wait for a move lower toward the 50-week EMA, which comes in at about $96 for GLD and $975 for cash Gold. The 21- and 50-week EMA’s acts as strong S/R barriers in nearly every kind of market, and Gold is no exception, so you may wish to do further analysis to see if adding on at those particular price areas makes sense for your financial situation.

Traders can be a bit more aggressive; expect to see some sort of a reaction move higher once GLD/Gold hit their 21-week EMA  (green box on the chart shows the likely time/price zone in which to anticipate a reversal higher)– this will most likely be a high-probability swing trade play, one that also needs to have a logical stop loss and profit target as well. Daily-based traders can do the same thing – plan on on the 21-day EMA offering some sort of a floor from which a short-term tradable bounce will commence. But be very nimble, with firm stop-loss and profit targets in place before you enter the trade.

Yes, this is a real correction in Gold, but no one really knows how far the price might fall. Even the strongest bull markets need to pause and correct before moving higher, and perhaps this is the case with the Gold market right now.  We should know more as the weeks ahead play out; as always, use common sense, be patient and learn to focus on what the charts and long-term fundamental factors are saying, rather than giving in to fear, doubt or the opinions of those who may not have your best interests in mind.

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By Donald W. Pendergast Jr.
Market Analyst
www.ETFTradingPartner.com

By Jeff Clark, Editor for Casey Research

For years, gold bugs like Doug Casey and his team have been saying that once gold takes off to stratospheric heights, it will take the gold mining stocks with it. It’s called the “Mania phase” of the commodity bull market.

Has this time arrived now?

If it hasn’t, it sure does a good look-a-like job. In the last weeks, the gold price has reached new records almost daily – the latest intraday high being $1,226.50/oz. The Chinese government has been urging its 1.3 billion citizens to buy physical gold and silver. And serially successful fund managers are beginning to load up on gold and gold shares.

BlackRock is a global commodities investment fund with a total of $1.4 trillion under management and serves as manager and adviser to the U.S. Federal Reserve. Not only did BlackRock state last month that “Central banks will be net buyers of gold this year as they diversify away from the U.S. dollar, marking a reversal of a decades-old trend” – the fund itself has a total of $4.655 billion invested in gold shares. Comparing the size of the gold stock market to the size of their portfolio, the 0.3% of their assets said to be invested in gold shares comes to something like 1 to 2% of the gold share market.

Financial website Minyanville agrees that “The smart money is already piled into gold,” listing high net worth investors like George Soros and Jim Rogers, and well-known fund managers like Bill Gross and Kyle Bass of Hayman Capital, Donald Coxe of Coxe Advisors, and David Tice of the Prudent Bear Fund.

The proof is in the pudding: On December 1, the Canadian TSX stock exchange posted its highest close in 14 months, and since the end of September, the S&P/TSX gold index was up 13%.

"There are really only four sectors in Canada — mining, energy, financials and everything else," Colin Cieszynski, market analyst, CMC Markets Canada, told the Vancouver Sun.

"For the most part, the seniors in the energy group have been flat for awhile and the banks have been flat for three months. One of the only areas that has been moving with a sizable weight on the index has been the mining sector. Since (gold) is one of the only areas moving, it's being noticed."

So, should you jump into gold stocks with both feet?

Louis James, senior editor of Casey’s International Speculator, one of the world’s most respected gold mining stock advisories, warns of throwing caution to the wind. In a recent interview with The Gold Report, James stated, “Gold stocks are . . . highly, highly speculative. Most gold companies don't have any gold; they are exploring for gold or developing projects that they hope will be economic. Only a few actually produce gold, and even the biggest producers are highly volatile, because the price of their product fluctuates constantly and strongly.”

“If [the juniors] do make a discovery, they go from having literally nothing but a geologist's dream to having something of measurable value. The difference in valuation can be huge; this is how it's possible to get 10-baggers or even 50 times your money on one of these stocks.”

Discerning the potential multi-baggers from the barren holes in the ground, though, is not an easy feat – but the market, says James, has done part of the work for investors.

”In 2007 and 2008, before the jitters, the market was overvaluing a lot of companies, practically anything with ‘gold’ in its name. Some of these companies didn't even have any assay holes drilled into their prospects; all they had were theories and hopes, and they were trading for tens of millions of dollars. Since last fall's crash, there's been quite a separation of wheat from chaff, and many of the companies that had nothing but theories or hopes have not recovered significantly.”

Still, James and his colleagues at Casey Research are expecting another market correction before gold – and by extension, gold shares – begin their trip to the moon: “If you're psychologically predisposed to being nervous about your investment, and you know you'd have a hard time dealing with a drop of 30%, 40% in a month or two, maybe this is not a good time to be buying speculative gold stocks.

“That having been said, if you stick to quality companies, buy an initial slice of your ideal position now, and fill out the rest of your position at a lower average price if it fluctuates downward, you preclude the possibility of missing out on a stock that takes off. But you have to believe in your picks strongly enough to see a sell-off as a buying opportunity.

“Our general recommendation right now is to focus on the best of the best. Everything in the International Speculator portfolio has resources drilled off that can be defined by one of the regulation-complaint categories or another. And it's all gold and silver right now.”

Finding the best of the best is, you could say, a house specialty of Casey’s International Speculator, with a nearly 30-year history one of the most reputable advisories of its kind. And for a very limited time, you can get it for a fraction of the normal retail price.

Until December 18, we offer a 40% discount on a one-year subscription. Try International Speculator risk-free for 3 months – with full money-back guarantee. Plus, receive a free holiday gift if you sign up today. Click here to learn more.

By the editors of Without Borders, Casey Research

After passing much of 2008 standing thankfully on the sidelines, we believe that with current valuations, opportunities have returned for putting capital back into long-term positions in emerging markets. In fact, we believe that emerging markets will recover faster and outperform developed markets over the long term.

In our December 2007 edition of Without Borders we wrote:

“So much money has been sloshing around the globe in search of an "above average" return that even risky assets have been bid up tremendously. At this stage, however, with new holes in the financial dike showing themselves almost weekly – more holes, we suspect, than officialdom has fingers – the money flows are building toward a reversal. This will hammer the emerging markets the hardest because, historically, in times of crisis, capital packs up its bags and goes home. When that happens, shares of good companies get sold at the falling bid simply because the seller must get liquid, whether to calm his fears or to cover his losses elsewhere. Asset prices become screaming passengers strapped into a luge ride.

“This creates opportunity, of course. Even though the economies of all the most prospective emerging-market countries are strong enough to weather any likely storm, their financial systems aren’t. This is emphatically true in India, China, Brazil, and other fast-track economies. Even so, when foreign financial capital has fled, the physical and human capital will remain, it will still be valuable, and good investments will be cheap in the extreme. But the opportunity won’t be available for everyone – just the investors who’ve been patient.”

Then in April 2008, we gave our presentation on “Bottom Fishing for Stocks in Emerging Markets,” during which we highlighted that the single most important factor in emerging-market stock markets is capital flows. In the emerging markets, the time to invest is when capital has fled the country.

We know we disappointed the crowd when we said that there was not one emerging market we found attractively priced and that shorting in emerging markets is almost impossible, so our strongest recommendation was to do nothing.

It’s quite a skill to do nothing and do nothing well. We sidelined ourselves and watched, staying away from emerging markets for most of 2008.

But now… finally, the catastrophic sell-off in global financial markets had the effect that we expected: there was a huge sucking sound coming from public equity and currency markets in Russia, Brazil, China, Taiwan, Malaysia, India, South Korea, Colombia, Chile, etc. Foreign institutional investors came face-to-face with the reality of lower risk tolerance and deleveraging and were forced to sell. Everything.

The ensuing flight to quality left emerging markets and their currencies decimated… but herein lies the opportunity. We just hope the IMF and World Bank will run out of money or leave them alone, thereby preventing the return to the boom/bust cycle of the 1990s.

Bullish long-term outlook

Remember, the sell-off in emerging-market equities, bonds, and currencies reflects a rush for the exit sparked by global deleveraging and a need to raise cash, rather than any change in the fundamentals. When the current turmoil subsides, we believe that emerging markets will fare better than developed markets and will outperform the latter over the long term. As such, we find that current valuations are solid entry points for putting our hard-earned capital into long-term positions. Consider:

  * Emerging-market economies will prove resilient during this economic slowdown and may account for all of world economic growth in 2009 as developed markets slow to zero.

  * Emerging economies are not nearly as dependent on consumer spending and almost not at all exposed to consumer credit.

  * Emerging markets by and large suffer neither the demographic imbalance nor the entitlement imbalance that plague the developed nations.

  * Corporate and personal balance sheets in emerging markets are stronger than those in the developed markets.

  * In many emerging markets (Brazil, most of South East Asia, India) as well as several African nations, domestic or regional demand is now more important than exports for GDP growth.

  * Among stronger economies, high foreign-exchange reserves and lower foreign debt levels act as insurance against the global slowdown; reserves have grown six-fold to over $4 trillion over the last ten years.

  * Over the past ten years, emerging-market companies have produced higher profits with lower (but not necessarily low) leverage, while profits expanded annually by double digits during the past ten years.

Cash Rich, Resource Rich

Compared to the late 1990s Asia crisis, the present situation is much more stable for emerging markets. While we expect current account surpluses to deteriorate given the global slowdown and recessionary pressures, emerging markets will face this challenging period with cash in their bank accounts.

The importance of this change cannot be overstated.

Much like individual households that stash away something for a rainy day, many emerging-market countries now have a greater reserve of wealth with which to buffer financial market headwinds. This gives them the option of taking fiscal stimulus measures to offset the effects of a developed-markets slowdown without having to go into debt. While we decry these neo-Keynesian actions as throwing water on an electrical fire, historically they have boosted share prices.

As part of their fiscal stimulus, we also expect to see higher infrastructure spending by countries with the financial muscle to do so. China, for example, which is projected to have more than 200 cities with populations exceeding one million people by 2025, up from just 23 in 2005, announced in early November 2008 a two-year infrastructure investment and stimulus package of up to 4 trillion yuan ($586 billion). While much of this stimulus will come in the form of strong-arming banks, there will be substantial cash injections in the Chinese economy, and they have the cash to do it: highways, railroads, and airports. The government hopes that this stimulus package will also encourage increased consumer consumption. All this is good news for raw-materials companies, one of which is an undervalued Chinese cement company that is a cornerstone of our portfolio. (Learn more about this company here.)

The turning point

Emerging markets will be the catalyst for global economic recovery, not the West. Like China, many emerging markets that have been saving for a rainy day have the cash and political will to spend on development projects that require raw materials. Others, like Chile and Angola, have the raw materials to sell. Even more so, a few countries like Brazil and Saudi Arabia have both. The economy will get jumpstarted with these countries initiating their own trade without the leadership or consumptive traditions of the Western world.

Perhaps even more pointedly, we foresee a highly inflationary environment over the next several years… all of the dollars with which President Obama will be flooding the world will have to find a home somewhere. This will more than likely spark another commodities boom, which is supported by the world’s ever-growing demographics, resource scarcity, and climate-change legislation.

As such, resource-rich emerging markets are going to find themselves being the future home to foreign investment capital again. Institutional capital will trickle, then gush into these markets as the world wakes up one day and finds oil and copper trading at twice their present levels.

Consequently, today’s emerging markets will be the net recipients of the future inflation that is being created by the West.

Capital Flow Conclusions

We have long said that capital flows are the most important indicator for emerging equity markets. Investor outflows in the second half of 2008 already equal one-third of the total inflows into emerging-market equity funds over the prior five years. This is a positive sign for contrarians looking for a bargain. There has been a bloodbath, and this is a buying signal.

We recognize that the ride will likely be bumpy. Fiscal stimulus, trillion-dollar deficits, and politicoramus bickering may cause a roller-coaster ride to the top… but the evidence strongly suggests that, once institutional funds finally realize that U.S. Treasuries are a fool’s bet, remaining capital will be on the hunt and flowing back into emerging markets.  The window is open, and we are dedicating our efforts to finding the most undervalued companies with rock-solid management and balance sheets.

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In times of economic crisis, prudent investors are well advised to diversify their portfolio… ideally, some of it in global stocks and real estate. Without Borders brings you the inside scoop from two globetrotting ex-CIA agents with privileged connections around the world. They’ll suggest sound international investments, as well as the most beautiful, stable, safe, and cheap places to live and invest.

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