Trading Gold, Using Kitco Traffic As a Guide

By Peter Degraaf    Aug 23 2010 9:49AM www.pdegraaf.com

There are almost as many trading systems as there are traders.  Every serious investor develops his or her own system.  Probably the most popular is the reliance upon the 200 day moving average.

In this essay we concentrate on a novel method of determining whether gold is overpriced or underpriced.  We will use the Kitco traffic counter as an indicator. 

Kitco traffic can be measured at a number of sites.  We will use Alexa.com and have produced a chart (courtesy Alexa.com) that tracks the number of unique hits that Kitco receives in a day to arrive at a ranking. 

The following chart oscillates between Kitco being in #1200 spot and #3600 position, among the millions of websites on the internet.

We have added the numbers from #1 to #7 which happen to correspond with turning points in gold.   These are matched by numbers on the next chart (courtesy Stockcharts.com), featuring gold bullion.  By scrolling back and forth between the two charts one can easily see the correlation.

“The American Republic will endure until the day Congress discovers that it can bribe the public with the public's money”.  ……ALEXIS De TOCQUEVILLE
 
Next let us add a ‘filter’ to narrow the buying opportunities down a bit more.  We do this by adding in the 200 day moving average.  Traders use filters to increase the chances of being ‘right’ about taking on risk.  The charts in the remainder of this report are courtesy Stockcharts.com

The number 3, 5 and 7 correspond with the same numbers in the Kitco traffic chart and represent times when the price of gold was within 3% of the 200 day moving average.  If you look in the Kitco archives you will see that I wrote articles right around those numbers suggesting that these were excellent times to buy gold.  By following my own advice I ended up recently being 90% invested in precious metals and mentioned that fact in my latest article.  (Subscribers to my daily reports are notified when I buy or sell no later than the next day).

The green oval indicates that the moving averages are in positive alignment to each other.  The 200 day moving average (red line), has been rising in strong fashion ever since the 2008 credit crunch.  The dashed green lines tell us that the supporting indicators are positive.

“A democratic government is the only one in which those who vote for a tax can escape the obligation to pay it”. ……ALEXIS De TOCQUEVILLE

There are 10 or less (depending on when you read this article) trading days left between now and Labor Day.  As you can tell from the next chart, price usually rewards those who buy gold before Labor Day. This reward comes as what is called the ‘ Christmas Rally.’

The blue arrows point to the beginning of the Christmas Rally right after Labor Day.  The red arrow points to the exception to the rule (due to the 2008 credit crunch).  Even then, those who held on were ahead of the game by Christmas.  The green arrow points to the current buying opportunity, just before Labor Day 2010.  In the event that commercial traders and bullion banks dump some ‘paper gold’ onto the COMEX towards the end of August, (in an effort to cover some of their short positions), then it behooves us to scoop up the bargains, by buying before they do.

 “As a general rule, the most successful man in life is the man who has the best information.” ……Benjamin DISRAELI.

Lest we forget silver, we end with this chart. It shows a bullish ‘cup with handle’ formation.  A breakout at the blue arrow will be very bullish.  The moving averages are in positive alignment (green oval), and both are rising.  According to Investor’s Business Daily the ‘cup with handle’ formation is one of the most reliable chart patterns available to traders.

Peter Degraaf

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DISCLAIMER:
Please do your own due diligence. Investing involves taking risks. I am NOT responsible for your investment decisions.
Quotes used in this article are found on my website and are part of a 60 page collection titled:  “Worthwhile quotes.”
Happy trading!

Peter Degraaf is an online stock trader with over 50 years of investing experience.  He issues a weekly report for his many subscribers.  For a sample copy send him an E-mail at itiswell@cogeco.net or visit his website www.pdegraaf.com