Gold's mountainous peak at RISK beneath $1600.

Gold's mountainous peak at RISK beneath $1600

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EXECUTIVE SUMMARY

GOLD’S AVALANCHE SIGNAL

LONG-TERM CYCLES FAVOUR A MAJOR GOLD PEAK

SENTIMENT & LIQUIDITY RISKS

SAFE HAVEN FLOWS TO REFUEL US DOLLAR RECOVERY

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GOLD’S AVALANCHE SIGNAL
Gold’s mountainous peak remains at risk of an avalanche decline having triggered a confluence of overbought signals amidst the all-important psychological $2000 glass-ceiling. Moreover, the CME’s 55% hike in margin requirements is likely to suffocate even the largest of gold-bugs and ultimately weaken any new long positions. This would explain Gold’s current weakness, despite increased safe-haven flows after the Swiss National Bank’s unprecedented intervention on the EURCHF rate and heightened worries on the EU debt crisis.

LONG-TERM CYCLES FAVOUR A MAJOR GOLD PEAK
Long-term cycles favour a major gold peak, marking this latest parabolic “throw-over” move as a high risk zone. In Elliott Wave terms, the move is potentially the end of a mid-stage (wave 3) impulsive rise. A weekly confirmation below $1600 offers a sharp price fall worth up to 28%, which would likely develop an important low by early 2012 and a very profitable buying opportunity.

SENTIMENT & LIQUIDITY RISKS
Meanwhile, various sentiment proxies have reached extremes and need to cool down. Speculative liquidity flows are of concern after yet another peak and is now heading toward a critical downside structural level. Over two years of sizeable long gold positions will be under threat if this area were to breakdown. This would place gold’s bullish macro drivers temporarily on ice as the market shifted to a large technical unwinding of overcrowded positions.

SAFE HAVEN FLOWS TO REFUEL US DOLLAR RECOVERY
Growing economic and political turmoil is forcing investors to scramble for more attractive safe-havens. But the world is running out of safe places to hide money, with the Swiss authorities leading a currency war against the franc’s haven status, Japan still vigilant of their strong yen (around historic WWII levels) and commodity currencies mean reverting from trend extremes. In a poor beauty contest, the US dollar may benefit from this domino "flight to safety" effect, coupled with Gold’s potential decline and unwinding of global risk appetite. Technical projections suggest the DXY may gain up to 30% in value from oversold momentum extremes.