articles @ 06 August 2013, “No Comments”

Gold’s price has been rising for over a decade now. It’s a reliable hard asset, one that has intrinsic value and has been regarded as wealth for millennia.

Everyone who’s up-to-date with gold’s prices during the early 2000′s knows that gold has been in a bull market for about 12 years. It’s been rising with slight interruptions, modest corrections for over a decade and bullion dealers have only had to gain from this phenomenon.

Gold has become “trendier”. But how long will this continue?

Can you trust gold as a long-term investment?

Could gold’s price crash?

Yes – gold can crash. In fact, it’s highly likely that it will. There are multiple signs that this could occur, only that the vast majority of investors and gold experts won’t tell you that – because they have the interest to sell their services and promote their partners.

On the very long term gold will indeed rise, but there could be a strong correction during 2013-2014. The signs are obvious and will unveil them to you – right on this page!

There are forces propelling gold up and there are others pulling it back! Precious metal sellers usually tell you about the ones propelling the prices higher, on the opposite side are governments and various institutions interested in currencies bonds, etc. – they will talk negative about gold.

Prime Values has a neutral position. Listen to both sides and act independently!

Understand where gold goes and buy when it’s cheap!

Cheaper gold prices can mean another great opportunity for buying! Because on the long term, fiat currencies will eventually lose tremendous amounts of their value and you will only be safe enough if you own hard assets.

Let’s see the forces first and how gold will crash.

The Forces Propelling Gold Higher

Details will be omitted, you will find a plethora of articles on this site and many others on the web. You will always find more articles about why you should buy gold and how it will rise on the long term.

Just to enumerate the forces and factors that are giving a boost to gold prices: fiat currency devaluation/hyperinflation/money printing, the worsening global economic crisis, high demand for gold (both from individuals, companies and governments – the more they buy, the more it will cost), the loss of trust in paper-based values (currencies, bonds, certificates etc.).

A severe, 1930′s depression is unraveling in front of your eyes. Hyperinflation, civil unrest, severe poverty are just part of the problems that could occur.

Peter Schiff, Paul Krugman, Nouriel Roubini, Marc Faber and lots of other economists have been warning about such scenarios. It’s rather a question of time than a question of “if”. Owning hard assets is unquestionably a good thing.

The Forces Dragging Gold Down

Of course, there are factors that cheapen gold.

Money-printing makes it more expensive, so does any major negative US economic data (and not only US economy-related data). But: when the US dollar strengthens, gold loses value. This usually occurs for brief periods, while the overall price trend is on an upward slope.

This is what we’d like to analyze under this article.

Let’s see why gold could crash as early as this year – 2013 or, later in 2014.

1. Gold Has Lost Momentum

You don’t have to be able to interpret the charts. Simply observe the price of gold on and observe the “humps” during the 2011-2012 period. It vividly reflects that gold doesn’t have the same energy to rise.

The “humps” are abrupt bull runs followed by sharp corrections. Almost every time gold gained strength, it took a dip very soon.

In early 2013 it has been trading horizontally. This reflects uncertainty.

The energetic rise of price was characteristic to the 2001-2010 period especially. After that, sideways tradings and abrupt drops…

In 2011 and since then, gold has been falling back after strong bull runs quite sharply. It’s an undeniable fact. Observe the charts.

All these despite “Operation Twist” (also known as “QE 2.5″), despite “QE Infinity” (the 3rd round of quantitative easing), despite the severe weakening US economy, despite the nearing fiscal cliff-related issues, etc.

2. Gold Has Crashed Before, it Could Happen Again

Check the historical charts and observe the evolution of gold’s price. You will see waves: ups and downs.

After President Nixon took the US off the gold standard, the “king of all metals” gained tremendous value, only to crash roughly to half of the peak value in 1980!

Look at platinum’s crash in 2002. Observe how that metal went up to above 2,200 $ and crashed to slightly above 800 $!

Indeed: gold can crash, as it did before. As platinum dropped. They are not immune to value-loss either.

3. Failure to Reach Predicted Price Levels

Gold failed to reach the 2,000 $ per ounce limit. The long-predicted psychological level could not have been reached. Multiple predictions by prestigious investors and renowned financial institutions failed multiple times.

Gold could barely hold the 1,700 $ level in 2012, despite CitiBank’s prediction of 2,400 $.

In December 2012, gold prices dropped 1,680 $ and the “big bull run” in early 2013 didn’t happen until mid January (yet, at least).

Evidently, gold is failing to meet expectations.

Recently, Goldman Sachs predicts lower gold prices for the coming period (see the related Reuters article).

According to these and numerous other predictions, gold will only get past 1,800 $ (will stay below 1,900 $) during 2013-2014. We shouldn’t be too enthusiastic about that 2,000 $ level. It seems like some forces pulling gold down are getting stronger.

4. Deflationary Scenario to Weaken Gold Prices

During deflation, precious metal prices, as prices in general are lower. Gold could “take a dip”, if this happens. It’s not 100 % certain, but it’s way higher than 50 % – it’s more likely it will happen during deflation that not.

Marc Faber is one of many economists warning of a possible deflation in the United States.

The long-predicted hyperinflation might only occur after the “deflationary spiral”.

It is possible that gold will “take a vacation” for a while and will pick up later on.

5. Weaker or Crashing Euro Will Propel the Dollar, Which Will Drag Gold Down

The US dollar’s biggest rival’s demise will only strengthen the American currency. Its position as a reserve currency might briefly be strengthened. This will rather be an artificial financially-motivated gain of strength.

Despite the US economy not delivering good results, the fall of its biggest rival will have a positive effect on it.

Ordinary people, but especially forex speculators will rush into the US dollar from the euro.

The obvious conclusion will be cheaper gold. Other precious metals (especially silver, perhaps platinum might follow).

6. Experts Predicting Lower Gold Prices For 2013

Marc Faber (also known as “Dr. Doom”) has stated in a CNBC interview in December 2012 that gold’s price could even go below 1,500 $ per ounce this year. He also talked about the fact that gold is in a correction.

Similarly, Jim Rogers didn’t seem too optimistic either – underlining that it’s rather unusual for a commodity to rise for over a decade. Rogers expressed that he wouldn’t be surprised to see a correction.

According to this MarketWatch article, gold will fall roughly 500 $ an ounce to reach as low as 1,200 $ per ounce in 2013.

7. Gold Price Manipulation

Jim Sinclair (also known as “Mr.Gold”) believes that major financial institutions like Goldman Sachs are manipulating gold’s price down only to buy it up at a cheaper price for later re-sale at a higher price.

Goldman Sachs is indeed often suspected of manipulating precious metal prices. Check the interview on King World News with Andrew Maguire, an independent gold trader and a whistleblower.

8. Paper on the Gold Market

ETFs and various other “paper certificates” that don’t have real precious metals behind them are behaving almost like fiat currency. They have no gold backing, but they act as if they had. So, their massive sales or lack of demand to buy them automatically induces lower prices for physical gold!

Let’s keep in mind: “what they trade out there” isn’t real physical gold, but rather “certificates of gold”. Physical gold becomes a victim of these speculations.

9. Automatic Stop-losses Ending Positions on Strong Dips

If gold turns bearish, there is a risk of “stop-loss detonation”: the lower gold’s price goes, the higher the likeliness of touching the stop-loss points set by investors.

Massive sale of gold futures – for example (one occurred in autumn 2012), can bring gold prices down only to trigger stop-losses. This is an automated domino-effect.

This danger is always there. But the gold market has been more often bearish during 2011-2012 than any time during the previous 10 years (2000-2010).

10. Psychological Factors, Weaker Investor Sentiment

Gold (as any other asset) is only good as long as people believe in it. Belief gives value.

Just like we believe in people, we believe in hard assets, similarly to fiat currency.

Perhaps the “belief” is one of the most powerful and very hard to measure factors that can move the prices of assets up and down.

Gold has lost from its prestige during 2012 and some bullion sellers actually reported lower sales. In mid 2012, gold prices dropped to 1,518 $/ounce and gold traded sideways until the 3rd round of quantitative easing was announced in September 2012.

If the investors lose confidence in gold, it drops. Loss of confidence will drag prices down, which will cause panic, fueling an even sharper decline.

Psychological factors play strong roles at certain times, but almost always act together with other (more rational) factors.

articles @ 28 July 2013, “No Comments”

First, please do bear in mind that forex day trading is a very high risk and speculative activity and should only be undertaken with funds you can afford to lose. Statistics on the number of forex day traders that lose their account within 6 months is depressing, in excess of 90%.
With all of this being said this article assumes you have done your due diligence and want to start forex day trading, using median line analysis. First, you will require two elements to help you get the job done and I highly recommend that you try to get the best of breed in each instance.
You will need a brokerage account and some way to chart the currencies and draw median lines.

Brokerage Account
You will need a forex brokerage account so do some homework on a number of forex brokers, build a shortlist and run a demo account with each to get a feel for not only the spreads but the application interface you will need to use when inputting orders. Make sure it supports the order types you want to place. Don’t simply assume the broker supports OCO (One Cancels the Other) orders for example. Do your homework, you will be risking real money and the industry is full of people that ‘dabbled’ with a $5k account only to wipe it out in a few months. Treat forex day trading as a proper business and not a hobby and you will avoid many of the pitfalls that generate the aforementioned 90% statistic.

There are hundreds of sites out there that provide reviews and overviews of many of the mainstream forex brokers so I won’t go over what is well trodden ground. However, I would suggest that you do NOT focus solely on the tightest spread. Many will quote you an enticing EUR spread only for you to find that the spread quoted rarely appears. Worse still, the spread gaps open when you try to fill on a larger than usual position leaving you with an undesirable price. When talking to potential brokers ask them to provide you with a demo login that shows real bid/offer spreads. Be aware that many may show you a tight spread on the demo account that mysteriously widens once you have signed up with them. Be sure to ask them, “are these the actual spreads I will see on the live account?”.
The reason I say not to focus solely on spreads is that often a broker will offer a tight spread BUT a few pips from the real market. Remember, interbank forex is NOT a regulated exchange and so different brokers might show slightly different prices unlike a regular futures contract where the price is the same for everyone.

Think about it this way. You have a chart with a median line you wish to trade. The line is at 1.2836 in the Euro. You wish to enter a position but find your broker is quoting a bid/ask spread of 1.28378/1.28383. So, whilst they are technically showing you a half pip spread they are almost a two pips above the market. What is to be done, wait for the Euro to fall another two pips or enter where it is now. A reputable broker will have their bid/ask very close to the price you see on a quality aggregated data feed (see below). A less than reputable broker may be several pips from the ‘market’ meaning you effectively have a FAR wider spread.

Charting forex
OK, you did your homework, reviewed brokers, tried several demo accounts and are now up and running with a live forex brokerage account. Great, but how do you now chart and generate median line analysis…?
Well, depending on your budget and account size you have a couple of options open to you. An integrated trading/charting platform or a separate charting application and data feed.

Many brokers will provide you with the ability to execute trades and generate charts within a single application (Thinkorswim, Tradestation etc). These are low cost and depending on their support for the tools needed (Andrews Pitchfork) can be suitable. However, I have yet to find an integrated execution/charting platform that comes close when compared to a dedicate charting platform. I mean that in terms of both data quality and comprehensive support for Andrews Pitchforks.

If you can stretch to it I would instead recommend looking at getting a dedicated data feed and separate charting application.
Let’s look at the data feed first. The Interbank forex market consists of many liquidity providers. When you generate charts you will stream data from a number of these liquidity providers. The more you liquidity providers included in your data stream, the more accurate your data feed. Several companies offer an aggregated data feed (eSignal, Interactive Brokers etc). This means they will automatically aggregate a feed from multiple liquidity providers and stream them to you in a single feed. You subscribe to this aggregated feed and as a result will see high quality charts.

Make sure your data provider is providing realtime intraday data. I know many that will try to reduce costs, opting for a delayed data feed. If you are forex day trading, quality REALTIME intraday data is a must.
An example of the sort of difference you see between a good and bad data feed is shown in the two charts below. See the first chart which was taken from a good quality, aggregated data feed. The pitchfork in question is a Modified Schiff fork taken from the low highlighted as “A”. The pitchfork works well and price bounces precisely from the lower parallel, (circled). An entry taken at the lower parallel would have been filled with minimum downside risk.

Now, see the same vehicle and chart but based upon a low cost non-aggregated forex data feed. The fork is identical but see how the bar at “A” doesn’t move as low, lessening the slop of the fork. Price fails to quite reach the lower parallel and any order placed there would go unfilled. As the slope of the fork is less than needed the error or gap from where the line should be to where it is will actually widen as time continues.

The problem is two-fold. First, you are trading a line that does not exist and worse, the fork itself may actually not be a validated fork, meaning you are trading a fork that does not exist.
So, get the best data feed you can afford. If the typical monthly cost of $50 is beyond your budget, ask yourself whether you should participate in forex day trading at all.

The final leg to the stool required for forex day trading is the charting application itself. There are several dedicated charting applications that support the Andrews Pitchfork tool (Ensign Software, Metatrader etc). Each provides a free trial so install them and spend some time generating analysis. Make sure they support the three variants of pitchfork commonly used; Andrews, Schiff and Modified Schiff). Ensure it is easy to color lines, add new parallels etc. Critically, make sure you are able to add alert lines so the charting application can warn you of a looming entry point.

Make sure the charting application supports the timeframes you wish to chart. As odd as it sounds there are actually top quality charting applications which will not for example support a 15 minute chart, where each bar on the chart represents fifteen minutes of price action.

If you choose to go with a separate data feed and charting application be sure to check they are compatible. Having the best data feed in the world is pointless if your charting application cannot stream it. I would highly recommend the Ensign Software and eSignal GTIS aggregated data feed but there are other combos out there that I am sure are equally suitable for forex day trading.

In summary, do some homework, select a well reviewed forex broker that has a platform that provides the features you need in your trading. Add to that a dedicated charting platform and top quality aggregated data feed and you won’t go far wrong. Be sure to attend one of Coghlan Capital’s Public webinars on Median Line Analysis for hands on training. For people who want to take the next step Paul Coghlan’s forex trading service or Elliotwave are excellent places to take trading to the next level. Be sure to also join the Casey Research newsletter. The free service offers tons of value for free.