Gold to Short-Term Target…Now What?

Now nothing… because a target is just a target.

We have been here before; those of us who have been around the precious metals markets throughout the current, ongoing secular bull. We have been through the extended periods of questioning by ‘the faithful’ as to why the ancient monetary relic does not keep up with more heavily gamed assets, which are not coincidentally positively correlated to the inflated economy.

Technically, gold has come to NFTRH‘s near term target, recently revised from 1225 to 1240. But what is that but a number? There is a higher target of 1300 off of the 1.5 year long consolidation pattern beginning in early 2008. Then there is the longer term target of 2200. These are all just technical mumbo jumbo my friends because gold is only ever about value in a monetary world gone insane. Gold is anti-casino, anti-speculation and anti-risk no matter what the mainstream media would have you believe. I always get a laugh out of MSM headlines along the lines of ‘Gold Declines in a Flight From Risky Assets’.

In phases where the global printing press is on auto-pump and hope, if not economic activity, gains traction gold can underperform the gamed mainstream plays like copper, oil, high yield bonds and the stock market in the short term. But few plays are at new all-time highs. Gold remains so, even after spending the last year in downward consolidation vs. the stock market, many commodities and the assets of positive economic correlation.

‘Armageddon 08’ saw the real price of gold explode to unsustainable highs and ‘Hope 09’ has simply been a corrective measure. Gold investors who know the value proposition of real money in a time of scarcity of same, just yawned while gold stock investors and traders – those who know the play – look forward to the next leg up in gold mining fundamentals, which grow by leaps and bounds as the real price of gold increases; in other words as gold resumes its outperformance mode vs. the things of hope, of positive correlation. The gold-oil, gold-industrial metals and gold-stock market ratios all factor in as gold miner costs decline in relation to their product.

I have been using this chart to gauge the coming of the next phase of the rise in gold’s real price. It is a simple chart noting a similar consolidation structure to the one that held sway in 2006-2007 as the gold sector was cleaned out in preparation for the coming events of the outwardly obvious credit contraction and resulting market crash.

Gold as measured in the S&P 500 has much higher to go now that the consolidation appears to be ending right at the uptrend line drawn on this weekly chart weeks before it was finally hit. Blog readers may recall the original post showing this chart from March 18th, Anything Look Familiar?

As signs of frothy sentiment that the gold sector is noted for get whooped up again, remember that if you trade the sector, you generally sell the euphoria and buy its polar opposite condition, despair. I am more of an investor due to current fundamental views, so I will probably continue to hold many or most positions indefinitely (likely with the protection of broad market short positions, which the above chart says is a good strategy).

With the none-too-subtle degradation of the global monetary system and gold bullish or rising in all major currencies, there is also a chance for a major spike here. In the markets in general, noise levels have increased markedly off of the dull rise to a likely top in prices and positive sentiment in April. We will keep a filter on this noise and keep an eye on a real bull market’s progress. This would be the bull market in gold’s real as well as nominal prices.

Meanwhile, in the background the struggles between the inflation and deflation stories play out short term. We are on the way to an inflationary future, but gold alone is proving itself of value during both conditions. The system is trying to deflate; this is being fought tooth and nail as currency is burned in the battle. Regardless of further upside or a sharp correction to support around 1000, gold is front and center and value will be retained until such time as the system is overhauled.

Some people bemoan that I do not make predictions. This is not the blog for them. A target has been hit; there are several more targets higher and one lower. These are the markets and you need to be ready for anything, including the possibility that things are becoming unhinged here and now. Years ago I started my simple web presence with a simple thought; be prepared. It still applies.