Friday, May 9, 2008

Has Gold bottomed?

When everyone can see something I tend to become skeptical that it will happen. Remember the market likes to take away the most money from the maximum amount of people. Everyone and their cousins can see that head and shoulders pattern in gold. I've got to wonder if the bull is using another trick to keep the fewest investors on board.

While everyone can see the H&S pattern no one is commenting on the successful test of the T1 move. No one is noticing that gold stopped dead in it's tracks at the old high of $850. The Hulbert goldtimers sentiment index is gloomy at -10.7%. That means the average goldtimer is short the gold market by 10.7%. This reading is in the lowest decile over the last 20 years. Historically readings this low have led to one month returns of over 14% on average.
Notice that silver has also tested the T1 consolidation zone.
I think there's a good chance gold has now started the A wave rally. This rally rarely takes gold to new highs but it would be a confirmation that the D wave decline is over. Once the B wave decline is over and it should hold above the $850 low the next C wave will begin. Since gold is now in the second phase of the bull market these rallies are normally very powerful.
I'm adding some physical silver now and I will add the rest once the B wave decline is over.
If I'm wrong I don't worry because as Old Turkey says "After all it is a bull market". Bull markets eventually correct any timing mistakes and hey I'm getting silver $4 cheaper than 2 months ago. In my book that's a bargain.