Professor Elam

Sunday March 21 2010

Is there a compelling reason to buy gold now?  The cable TV channels have everyone
from someone claiming to be  a
former Treasury big wig to Gordon Liddy, famous Federal Inmate Bigwig, telling
us to buy gold.   Such
magazine cover story headlines usually occur at market tops, not bottoms. Let’s
take a look at the slow moving monthly chart.

As gold is being touted as an alternative to money, we put
it In green on this chart. It was no hedge against anything going into the 2001
low where it dropped from $400 to a final give up $270 or so. But as the Dollar
topped at 120 on the right hand scale shown in red and black bars, Gold rallied
as the Dollar fell .

Now the MACD at bottom has made a second higher low shown by
the pink arrow at right. In the main chart to avoid too many lines, the pink
arrows high light the previous support at 60 for the Dollar, now turned to
resistance on the way up.  But
clearly the big picture here is that gold and the Dollar have undergone a ten
year reversal,  one out of the
doghouse, gold, and now top dog, so to speak.

We put in the same four wave counts from the weekly chart,
and they are pretty clear here I think. Note that gold has clearly fallen with
the dollar, each has been in a sideways fourth wave for the last two months.
And note at bottom that the MACD appears to be turning up.

Finally this is a an hourly chart for the last three months.
NOTE, gold in green has made lower highs! 
This is not the sign of a bull phase !   The Dollar made higher highs before correcting in a
fourth wave during March, it leaped up in Friday trading as stocks and gold
fell.   By the way we are
showing UUP for the dollar and GLD for gold as stockcharts has intraday data
for those ETFs but not for the actual commodity.  Cash gold dropped $20.40 this past Friday.

Bottom line, we think gold has further downside short term
and the dollar more upside.