Jim Wyckoff's Gold Survival Guide
(Kitco News) - Contrary opinion in the trading business is defined asgoing (trading) against the popular or most widely held opinions in themarketplace. This notion of "going against the grain" of popularmarket opinion is difficult to undertake, especially when there is a steadydrumbeat of fundamental information that seems to corroborate the popularopinion. In this case, the metals markets have been hit hard with bearishfundamental and technical news.
To help you understand why contrarian thinking is usedsuccessfully by some traders, consider these questions: When is a market mostbullish? When is a market most bearish? The answers are: A market is mostbullish when the highest daily high on the chart is scored--it's downhill forprices from there. A market is most bearish when the lowest low is reached onthe chart, and then the market turns up.
It's no wonder many novice traders lose their assetsquickly in the futures and FOREX trading arenas. Traders are most bullish atmarket tops and most bearish at market bottoms!
Popular opinion is many times not the right opinion whenit comes to market direction.
Contrarian trading is not for everyone, but some tradersare successful in employing it.
One more thing: History will show that gold priced justbelow $1,200 is a long-term, value-buying opportunity. Raw commodity marketsare very cyclical. The PMs are in a down cycle right now, which will befollowed by an up-cycle. I strongly suspect that in the coming few years, or sooner,gold will reach new record highs.
Sage market maxim: Markets are the mostbearish atthe very bottom in price. And then prices start to work their way higher.
--If price action in gold and silver today and Friday cansee stabilization or even slight gains--given Thursday's spike lows--then suchwould be a technical clue that the bears are finally exhausted and that atleast near-term market bottoms are close at hand.
--We are heading into what is historically some of theroughest stretches (September and October) for global equity markets. After theU.S. Labor Day holiday, look for more active trading that could produce morevolatility and be supportive for gold and silver markets.
--While there are presently worries about asecondary-currency-market crisis, or "contagion," the safe-haven goldand silver markets have so far seen little to no safe-haven demand. However, asignificant escalation of anxiety in the world marketplace will benefit thegold and silver markets.
--While the U.S. dollar index requires daily monitoringbecause it's been the major bearish element pushing metals prices down, alsokeep an eye on crude oil prices. Nymex crude oil prices hit a seven-week lowThursday, and if oil price continue to trend lower it will be tougher for theprecious metals and other raw commodity markets to sustain rallies. Crude oilis arguably the leader of the raw commodity sector, and its daily price movesinfluence many commodity markets, including the metals.
--Watch China economic developments. The world'ssecond-largest economy (and also a major metals importer and consumer) ispresently sputtering a bit, even though it's annual growth rate remains wellabove the other industrialized economies. The metals markets have beenpressured in part due to notions of an economic slowdown in China. TheU.S.-China trade dispute has been a drag on the Chinese economy, so any newdevelopments on that front will be market-sensitive for the metals.
By Jim WyckoffFor Kitco News
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jwyckoff@kitco.comwww.kitco.com Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.