After turning in a sizzling performance in recent days, gold faces a crucial test not far above. The precise number to watch is 877.70, an important “Hidden Pivot” resistance that lies exactly $57.30 above yesterday’s Comex settlement price for the December contract. Although 877.70 is our minimum expectation for the near-term, the pivot could also stop the rally cold. On the other hand, if the futures should get past it – and, better yet, do so with relative ease -- that would suggest more strength is coming, perhaps the booster stage of a decisive thrust past $1000.
We’ll be monitoring the action at 877.70 closely in any event, since the amount of stopping power this Hidden Pivot displays can tell us how much buying power is still percolating beneath the surface. If the resistance is bulldozed into oblivion mere minutes after first being touched, that would strongly imply that a move to $1000 is likely for this rally cycle, which began on October 24 from $688.90.
One reason we think 877.70 will prove crucial is that this number is tied to both of the analytical methods we use: Hidden Pivots and Morge Median lines. In this instance, the two methods have produced an identical rally target (although the Morge number will migrate gently higher as the days go by). The graphic above, for Comex December Gold, shows both methods merged on the same Ensign daily chart. The blue lines represent three tines of a pitchfork whose median-line comes in now at exactly 877.70. The diagonal green lines represent a Hidden Pivot ABCD pattern, but with a twist: Instead of starting the pattern at the usual point ‘A’ low, we have backed up to the countertrend segment that precedes it. We’ll spare you the technical rationale for this, but suffice it to say, the Hidden Pivot target works out to 877.70 -- precisely the same as the median line. Together, these coincident targets have begun to exert a magnetic pull on December Gold that all but guarantees it will get there, and soon. But the targets also possess double stopping power, and that is why an easy move through them would be a very bullish sign.
Too Late to Save Debtors
It’s by no means a done deal, although the reasons for gold’s burst of strength are so obvious as to require only minimal explanation. With last weekend’s furtive “rescue” of Citigroup, the U.S. raised the threshold of its willy-nilly guarantees to something approaching $4.6 trillion. Any imbecile (CNBC guests excepted) can smell a hyperinflation down the road and a day of reckoning for the dollar. However, for the time being, deflationary forces are far more powerful globally, having already destroyed an estimated $52 trillion worth of assets, including stocks, bonds and real estate. Moreover, deflation has caused a fundamentally worthless dollar to act strong simply because debtors, unable to keep rolling their loans, are being forced to settle up in cash.
The artificially strong dollar has kept a lid on bullion quotes, but if gold is indeed about to blow past $1000, it would suggest that investors are looking beyond debt deflation toward the inevitable destruction of the dollar. We still believe it will come too late to save debtors, who would of course benefit if their homes were to increase in value to, say, a quadrillion dollars. But if gold were to break decisively above $1000 even as deflation continues to crush nearly all other classes of assets, we’d infer that perhaps those $10,000-an-ounce estimates broached by some celebrated gold bugs are not so farfetched after all.
