Gold $354.50 The Maginot Line. Thursday, 01.09.2003
Last evening we discussed the $354.50 level of gold as The Black Knight that stood guard at the bridge saying "None shall pass" in order to communicate what was really happening with gold market-wise. The bridge in that example is the price of gold at $354.50 and the Black Knight represents those that would be harmed by a higher price of gold and therefore are doing what they can to prevent a crossing that will soon occur. The Black Knight fails to prevent King Arthur and his troops from crossing the bridge, but seems as if he really does not know he has already failed.
Let's look at $354.50 in another way. It can be compared to The Maginot Line that turned out to be a line drawn in sand.
After experiencing tremendous devastation and huge loss of lives in WWI, the French government built the Maginot Line to defend their border against Germany. The Maginot Line was described at that time as "a vast, dynamic, state-of-the-art, ultra-modern defensive system. Most of its components were said to be underground, where interconnecting tunnels stretched for kilometers, and where, beneath the earth, thousands of men slept, trained, and watched." The Maginot Line, or the "Great Wall" of France, was intended to be a place for soldiers to hide, while it provided the time necessary to mobilize the troops. "The Maginot Line was a powerful line of defense which stretched from Switzerland to the Ardennes in the North, and from the Alps to the Mediterranean in the South." The only glitch was that when Germany decided to invade France, instead of crossing The Maginot Line, they simply went around it and invaded France through Ardennes forest. France surrendered rapidly to the Germans.
Similarly, the $354.50 line, which is not a resistance point, will be breached out of the blue, all of a sudden, as if there was in fact no one to defend or stop the rising price onslaught of the gold monetary disciplined troops.
Normally at this juncture I would be cautioning the community. It is clear that the Gold Cartel and Exchange Stabilization Fund would like to see $354.50 function as did $330, albeit with more staying power. Federal Reserve and the White House are expending great efforts to not let this equity market decline below the present $8200 Dow Level (so as to keep their instant gratification troops somewhat happy).
Rats in The Woodpile
Rat #1 The Weakness of the US Dollar There is however a rat (or three) in that economic and political woodpile. The key rat is the weakness of the US Dollar. This is incurable in the light of the negative US Dollar plans being utilized by both the Federal Reserve and the White House to maintain the level of the equity markets and therefore the mood of the public. All of their efforts are in hopes of igniting economic recovery. It is simply a contradiction of desires for a strong market to be produced in this environment by means of dollar weakening economic techniques.
Rat #2 Iraq The second rat is Iraq. Informed opinion states that plans for a war and war rhetoric have gone on too long. If the US does not launch an attack by the end of January, then the growing support for Iraq in the Middle East, even by certain NATO nations, is going to strengthen Saddam's position to a point of a lost opportunity. I have heard this from serious, well-placed and knowledgeable sources.
Rat #3 North Korea The third rat is North Korea who is saying, "If you want to pick on someone for making atomic weapons, come on, we are ready." Yes, they have openly challenged the fundamental reasons for the Bush administration's basis for an invasion of Iraq (remember- no nasty grams to the messenger: me). When the White House suggested that the North Korean problem could be solved by diplomacy, North Korea answered saying that they had no interest in discussions with the US or anyone on their renewed Atomic Weapons program. I am told that after January is over, if the US has not invaded Iraq, not only will this resistance and challenge accelerate, but also others less friendly nations to the US will join the chorus of those who are cozy with Iraq for business reasons.
So, at this time, do you really want to be without your gold position, or even for that matter, with less of a gold position as long as you are not over extended? If the gold market weakened somewhat, would you really want to throw your shares or bullion into the market questioning if the thesis of gold has failed? I really do not think so.
The problem is that trading here is not warranted, in my opinion. That is because the "Bridge," when the gold market gets it into its mind to go over $400, could do it right from here and tomorrow. There will be no Black Knight able to keep gold from crossing the bridge. There will be no Maginot Line in the right place when gold ignites and runs over $400. It is very close to that gold move regardless of today's Presidential and Fed inspired stock market rally.
Therefore I cannot recommend reductions in positions here. There simply is too much gunpowder on the ground and the firing officer is standing too near the fuse with a "Churchill" type cigar ignited and dropping sparks. He might fire even before the commander yells "Fire" and there goes gold.
You have to understand that the stock market is driven not by the public today, but by money managers of institutional funds. There is no public in the stock market. If an institutional money manager is not buying in a rally, that manager will lose the job. They can cream you, the investor, in a bear market long with no lack of job security. However, if the market rallies and they are either light in stock or in cash they are out of work. Yes, it is totally amoral, but it is a reality.
So, at this time, the insurance character of gold overrides the trading potential of gold.
I will continue to give you support and resistance points with comment, but at this point I cannot, in all good conscious, suggest that against the real resistance at $357 - $359, you lighten up. I have no need to pump my ego by making consistently correct market calls. I already know that I am able to do that in gold and the dollar. Forgive me if I err by this approach, but I must speak clearly and definitively in what I firmly believe is the best interest of the community. Gold, having completed the Golden Teacup, is on its way. Yes, there will be drama along the way but, in my opinion, the target price objective of $400 and $500 are no longer technically questionable save the for the Prechterarian Wavers.
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