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Monday, January 14, 2013

Review of Gold

Review of Gold:
  • Gold's Diffusion index (DI) has risen from -86% in October 2012 to +33% as of 01/08/13 (chart 1)  This steady rise illustrates accumulation during the AB transition (delay) by the invisible hand.
  • The weighted stochastic of open interest or "participation" has fallen dramatically since September 2012 (chart 2).  Participation represents a good proxy for sentiment towards gold.  As price declines, investors transition from  positive sentiment - "I love gold" to negative sentiment - "I hate it."  Gold has a tendency to bottom when everyone but the invisible hand hates gold.
  •  The invisible hand uses spreads to profit from phase transitions within a trend.  These transitions include inflection and acceleration points (chart 3).  A spike in spreading activity will hint an acceleration point is near.
  • Silver correlates to gold with amplitude.  Silver's money flow setup, i.e. diffusion index, continues to lag that of gold (chart 4).  Silver's DI is -11%, while Gold's is +33%.  Why is silver lagging?  Participation in silver hasn't declined as much as gold (chart 5).

Chart 1:  Gold London P.M Fixed and Gold Diffusion Index (DI)


Chart 2:  Gold London P.M Fixed (Gold) and the COT Futures and Options Open Interest Stochastic Weighted Average (WA)


Chart 3:  Gold London P.M Fixed And Noncommercial Spreading Activity Diffusion Index (DI)


Chart 4:  Silver London P.M Fixed and the Silver Diffusion Index (DI)


Chart 5:  Silver London P.M Fixed and the COT Futures and Options Open Interest Stochastic Weighted Average


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