Shenandoah

by John Galt

December 2, 2009

I am not one to question the reasons behind the move we are seeing in gold but from every logical bone in my body and the history of moves like this, we are in what could be considered a short to intermediate term parabolic blow off which will top and come down hard. I know that the gold bugs will hate me for saying this but this move has all of the indications similar to the head fakes we saw in the late 1970′s before a correction set in then the final parabolic move to all time highs. The problem with this move is that it is unique and could violate all technical reality much like the current U.S. equity markets which are also considerably overdue a move to the downside based on fundamentals and technical reasons.

Here is a chart of the gold futures with the dramatic portion of the action highlighted with the obvious parabolic characteristics and my projected region of support:

I am not saying that we will test the support levels but the lofty moves above the 50 day moving average will eventually come back to earth as the Fed and the world central banks feel that the recent inherent weakness in the U.S. Dollar has gone far enough and artificial moves are attempted to bolster the price and move the U.S. Dollar Index back up over the 78 level. In my opinion that will cause a correction in gold but ultimately fail leading to the big move in gold up over the $1500 price level and hitting Jim Sinclair’s angel above the $1650 area. There are two things that could prevent this technical correction from happening, number one being a war in the Middle East or military action by Israel against Iran and the second would involve an announcement by the Chinese or another major central bank of a major increase in their gold reserve purchase plans which could double the price in very short order.

The GLD ETF, America’s favorite paper phony gold play is also exhibiting similar characteristics, but the gaps in the price moves tells me we have some backing and filling to do that could create a headache for the permabulls and also cause a false sense of optimism for the “gold is a relic” crowd:

If we fill all three gaps, which I think is likely, then the move up from the teset of the lower end will be quite dramatic and remove any doubt that the U.S. Dollar is in its final death throes. I’m not saying what WILL happen gang, but based on the voracity of this move and the dramatic manner and volumes involved, eventually it should burn itself out, retrench and then surge higher from these new higher lows I have outlined and provide a long term healthier bull market in the metal.