Dear Friends,

Please examine the following weekly price chart of the Continuous Comex Gold contract.

Something that should be pointed out is that not once since the bull market in gold began all the way back in 2001, has the RSI reading dipped below the 35 level. As a matter of fact, it has never reached the 30 level, which if you understand this very helpful technical indicator, signifies a market that is decidedly bearish.

In interpreting the RSI, we note that bear markets are generally contained between the 60-20 levels on the indicator while bull markets will run generally between 80-40.

During a bull market, price will run higher on strength, then experience a retracement during which it will usually not exceed 30 on the downside level before moving back higher in the direction of the longer term trend and going on to make new highs.

The opposite is true for a bear market. Price will fall as selling pressure amplifies and take the RSI down to near the 20 level only to experience a bout of short covering that takes the RSI back up to near the 60 level before fresh selling takes over and another down leg commences.

If you look at gold, because of the fierce resistance put up by the price cappers employed by the feds to contain the yellow metal, it has only exceeded the 80 level on two occasions, once in 2006, and again in 2007. Look at how many times it exceeded the 70 level however and compare that to how many times it ever breached the 30 level, which as you will see, it never has once done. By classic definition, this is a NOT A BEAR MARKET nor is it a market, as the deflationists would have us believe every time it experiences a setback in price, ready to collapse and fulfill their fantasy of $250 gold and embark on a brand new bear market.

That crowd has been wrong about gold since they started predictions of its demise all the way back in 2003. Were they to have correctly called the move higher in gold as nothing but a short term rally which any day was about to give way to an inevitable long term decline in the yellow metal, the RSI would have confirmed their delusions by consistently registering readings down below the 30 level which should have easily hit the 20 level. All price movements higher in gold would subsequently have been held in check near the 60 level on the RSI with only a few brief forays that might have squeaked by to nip 65 before price retreated once again.

Again, look closely at the price chart of the action of this year and note that gold has been trendless and working in that very large consolidation band that I have referenced in my daily commentaries. By definition a market that is trending sideways, will meander between 60-65 on the top side and 35-40 on the down side with a move towards 65 signifying a market that has a sideways to higher trend within that broader consolidation pattern while a RSI range carved out between 55-35 is typical of a market that is moving sideways to lower within that broader consolidation pattern.

Note the period within the first blue ellipse shown on the chart that encompasses the nearly 15 month long sideways pattern formed between after gold first cracked the $700 barrier in May 2006. During that time period the RSI ranged between 65 on the topside and 45 on the downside and it did that for 14 long months before it finally broke free of its consolidation pattern in late September of 2007.

As long as the RSI reading stays above the 35 level or maintains its footing above any of the prior lows in the RSI as shown on this chart, it cannot be said from a technical basis that gold is in a bear market of any sort. That is a totally objective statement even though I am obviously biased toward the long side in gold.

One last look at the chart and the final ellipse drawn around this year’s price action as denoted by the RSI reveals that just as what occurred back in 2006-2007 was a long period of price consolidation, so too the action in gold going back to early 2008 has been a decidedly sideways affair in a long term trend higher.

As a matter of fact, gold could technically fall as low as $700 once again and as long as it bounced from near that level and the RSI maintained its footing above the 35 level, the price chart would still be indicative of a market in a long term uptrend undergoing nothing more than a period of price consolidation. Remember this whenever you hear the deflationists trumpeting their claims that gold is dead and dying.

Let me close this brief commentary with saying that I have had so many requests from so many of those who read this site faithfully, to publish some sort of newsletter on the commodity markets, that I have begun to consider doing so. I have resisted this for the longest because of the amount of work that goes into putting out something of that nature being fearful that I would run myself into an early grave if I attempted to put anything further on my plate. However, if I see that there is sufficient demand for this, I might want to give it a try to see if it would prove a helpful tool for those of you who are attempting to navigate this tumultuous sea that today’s markets have become. This would be something in addition to the daily reports that I have been writing for some time now and would focus on a much broader array of the markets and with much more detail.

If those of you who might be interested in such a thing would please be so kind as to let me know I will take that into consideration when I make a decision on this. I have not even thought of what kind of fee that could be charged and still be reasonable and affordable. For that matter, I am still a bit hesitant because of time constraints in attempting to actually trade and yet still produce something of quality and value so please bear with me as I wrestle with this decision whether to proceed or not to proceed. I have tried to answer so many emails dealing with things related to the markets that I have given up attempting to do so as the attempt to keep up is literally overwhelming especially when trying to maintain a happy family life. My thinking is that perhaps by putting out some sort of newsletter along this line, I can get a lot of those questions answered in one single place.

Sincerely,
Dan

Click chart to enlarge in PDF format