GOLD: CASH: 638.85; AUGUST GOLD: 643.60
JUNE 6, 03:15 ET : ALL PRICES BELOW BASIS CASH
1. Before I proceed to where I believe we are in the greatest commodities and gold bull market in economic history, I want to state unequivocally that we have much further to go to the upside in the price of gold, and remain very bullish in the big picture as I have been for many years. What follows below, is an attempt to examine the probabilities of whether we have finished the correction at 618.30 on June 1 from the $731.25 high of May 12 or whether there is more downside left, and if so, what would be the most likely targets.
2. I wrote the preface so that you could better understand what I am about to write; there are three possibilities as the what the gold market is retracing on this correction:
i. the move from 590.10 low on April 13 to the high of 731.25. Under this scenario, the correction should be very deep and theoretically not take out 604.70.
ii. the move from 533.30 low of March 10 to the high of 731.25. Under this scenario, the correction should also be very deep and have extreme targets of 597 and 609.50.
iii. the move from 371.00 low of May 10, 2004 to the high of 731.25. This is just as likely a possibility as i. and ii. above and the correction could be ANY fib retracement in theory, especially when you consider that this is destined to be the greatest gold bull market in history and the worsening condition of the dollar ( more on that below ). For your info, the .382 ret. is at 593.60 and the .50 ret. is at 551.13. We have already taken out the .236 ret which is at 646.23. In terms of time, we would be correcting a 24 month move and it would be quite extraordinary for the correction to last only a few weeks but stranger things have happened although probabilities would suggest a correction lasting longer than that. What it would normally imply is a sideways correction from the high to the low ( whatever that happens to be, such as 618.30 or possibly a bit lower lasting for some time and then a resumption of the bull market.
From the above, we can conclude that the market has a convergence of POTENTIAL targets between 593 to 609.50.
As of now, I don't believe that we would take out 593. Do we have to go to these levels? The answer is NO but it at least defines what I believe is the maximum downside potential for the gold market's correction from the 731.25 high.
When I analyze a market technically, I use both a bottom to top approach, which is what I have done above, and an analysis from the top down, i.e.731.25, to the present. I ran out of gas this morning ( as you see above, I started this at 03:15 ) and I am resuming my analysis at 14:18, June 6. Here is my analysis from the 731.25 high:
i. we are in the very final leg down from the 731.25 high and we could have seen the low already at 618.30
ii. interestingly enough, the targets for this last leg are from 630 to 595 which falls in closely to the max downside potential targets of 593 to 609.50 mentioned above using the bottom to up approach.
iii. so far today, we have seen a low of 624.75 which obviously did not take out the previous recent low of 618.30 of June 1.
iv. the daily momentum indicators are deeply oversold and I understand that the bullish sentiment indicators have fallen significantly; both of these conditions are a prelude to a move back up.
v. the cash dollar index is doing a complex correction and retracing the move from 90.40 of April 3 to the low of 83.60 of May 15. This correction should be a shallow fib retracement in theory and this morning it had targets of 84.99 to 85.21 as possible targets and resistance. The high so far today is 84.95. Under the best of conditions for the US dollar, I would not expect it to take out 86.40 at any time before resuming its downtrend and breaking the 83.60 low. Thusly, we will, in the not distant future, reenter a period of dollar weakness and break the 83.60 low of May 15. Therefore, this should be supportive for gold and silver although don't expect, necessarily, a tick for tick relationship.
I want to get this out to you as soon as possible as I sense from many emails that there is some amount of trepidation by the gold longs. I hope that what I have written above defines where we stand and what your potential downside exposure may be. I will write my analysis of silver within the next 72 hours as well as comments pertinent to our understanding of this correction and other markets that I am invested in ( especially currencies ). Don't forget that the fundamentals for gold and silver remain extremely bullish.