Thursday, June 28, 2012

Gold - A Pair of Puzzling Surprises

With today being the 9th day since gold began its descent from 1635.4 it would seem reasonable to assume the sky is falling and gloom is directly ahead for gold bugs. But hold that thought while I show you a couple of rather puzzling surprises about gold's recent price movement. 

First off, I offer this daily chart spanning 2007 - 2012 of the Gold Futures (/GC). I have identified the various B and D-wave bottoms and C-wave tops within this time period. The chart also features that new indicator I created recently but have not properly named - so for now it is 'NewStudy14'.

I tend to think of this indicator as measuring buying pressure. The 3 lines one sees in the indicator panel are moving averages of its data - 10, 20 and 50. Generally, when the indicator lines are above ZERO, they are colored blue and price is usually rising, and magenta/red when below ZERO and price is usually falling.

Click on any chart to ENLARGE

Now let's zoom in on the previous B-wave bottom that began in April 2009.

What I have done on this chart is simply measure the slope of price movement out of the 2009 B-wave bottom, which came out to 70 cents per day. It turns out that this very slope defined the slope of the entire 2.5 year C-wave that topped last September 2011.

I also noted that the indicator is generally above ZERO when price was rising and magenta/red when price was falling.

Reflecting back to the Joe Granville days in the late '70s we were told that volume precedes price. And to explore this alleged 'truth' I have concocted so many money flow, volume indicators in so many variations I have simply lost count of them all. But I have wanted to see if volume does indeed precede price for myself. At this point, the best I can say is 'sometimes it does, and sometimes it does not'.

So now let's look at today's gold chart and see what we can make of the pair of puzzling surprises.

Surprise number one, for me at least, is to discover that despite gold's nearly continuous fall for the past 9 trading sessions, it has only now reached a low that equates to the slope of price movement out of its April 2009 low. I definitely thought gold had dropped much below that slope and so far, anyway, it has not.

Surprise number two is to see that despite dropping in price for most of the past 9 trading sessions, all three moving averages of my little indicator are still above ZERO and color blue. Actually, this really surprises me. 

Now certainly, this can change. But when I think about it and the way the indicator is constructed, it tells me that the buying volume during these past 9 days has held up very strongly. Yes, there has been more selling volume than buying volume - but the difference is probably not that great.

Which makes me wonder about 'ol Joe Granville. I mean, this demonstrates buying volume ahead of a rise in price, at least potentially. Hummmm....... What do you think?



  1. John, I sure agree that changes in volume are NOT consistent, sure signals of a turn. Your slope and indicators may portend that a turn up is not far away. I'm just beginning to get momentum divergences on the 30 minute chart which portend an up move not too far away.


  2. By about 10 pm est Thursday evening (last evening) /GC had more than made convincing TSI trend line
    break and ZERO crossover BUY signals. Then after 6:00 am est this morning /GC began to fly and by the
    end of that hour, reached what is now measured as the 50% level for this rally and today's high.

    I really did not want to put my foot in my mouth with the observation about the volume indicator, but it
    certainly was curious that so much positive volume should be present with such a large drop in price. What
    I wanted to say was that it appeared smart money was loading up despite the multi-day fall in price.
    In retrospect, I imagine that was closer to the truth than I realized.

  3. Nice prediction there John.