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ELLIOTT WAVE


Is Gold A Buy?

05/15/08 01:47:06 PM
by Koos van der Merwe

Gold was a safe haven to a falling US dollar, but is it still one if the US dollar were to strengthen?

Security:   GLDL
Position:   Buy

JPMorgan Chase & Co. chairman and chief executive Jamie Dimon told bank investors on May 12 that while the current credit market crunch may soon be over, the US economy could still face a deep and extended recession that could last into 2010.

With US interest rates currently as low as they are, and the lessons fresh of Japan's decades long depressionary fight with a 0% interest rate, the question arises as to how low the US Federal Reserve is prepared to cut rates. Indications are that they will move much slower in the future. However, should the Dow Jones Industrial Average tank as expected (see my previous article, "What Is The VIX Telling Us?"), then they may be forced to cut rates further as they try to rescue the economy. This will have the effect of once again weakening the US dollar, causing gold to strengthen.


However, as with any economist, there may be two sides to this argument. Gold may strengthen simply because there is less gold being mined than there is demand. Discovery of highly profitable mines are less frequent than in the past, and even with better and more efficient mining techniques, there is a slowdown in production, if not yet, then in the near future. The days of panning for alluvial gold in streams and river beds rather than looking for the source of that gold and drilling for it is once again becoming an attractive alternative.

FIGURE 1: LONDON GOLD, DAILY. This chart of gold suggests strength.
Graphic provided by: AdvancedGET.
 
Figure 1, a daily chart of the London gold price, shows a wave count that suggests that gold has completed a fourth-wave correction and could soon start rising into a wave 5, with an immediate target of $1,080 per oz. The two indicators, namely a 20-period commodity channel index (CCI) and a 12-period relative strength index (RSI) are suggesting strength. However, the PTI (probability ) of 34 is extremely weak, which is most probably the reason why the Advanced GET program is suggesting a target as low as $1,080.

The chart pattern that has developed is a pennant, and a breakout at $887.37 will confirm the buy signal given by the two indicators.

To conclude, I would be a buyer of gold at present levels.





Koos van der Merwe

Has been a technical analyst since 1969, and has worked as a futures and options trader with First Financial Futures in Johannesburg, South Africa.

Address: 3256 West 24th Ave
Vancouver, BC
Phone # for sales: 6042634214
E-mail address: petroosp@gmail.com

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