Wednesday, November 4, 2009

Gold Fractal Update

A lot of predictions are being thrown out these days as gold surges and garners attention going above the $1000 mark. It seems like about half (well maybe 1/3) say it has run too much - short it. The rest are timidly stepping onto the train. It can be confusing listening to the arguments for and against gold because most of them make good sense. Shorters say gold is getting crowded. Longs say it's not too crowded. Have you seen any popular magazines lately with gold and silver cover stories?

There is a totally dispassionate way of analyzing gold that doesn't try to figure what bank may be selling or what government may want to buy or what the human psyche is on moving money into it. There is pure technical analysis that does all of that of course, but then there is the new dispassionate way - fractal analysis.

David Nichols is a pioneer in this developing science and has been incredibly accurate in calling the movement of gold. For an overview of fractal analysis, read the July 5 post here at my blog Is Gold at a Fractal Moment? where I summarize his call that early July would see a major turn begin out of the consolidation since March '08 and into the next hypergrowth phase. Look at a chart and see if that isn't exactly when the present run began.

There are many things Nichols uses to form a projection, one of them being the fractal dimension. This is a measure of energy level. Fractal theory says that anything fractal moves in repeating patterns with an ebb and flow of energy. An energy dimension can be computed that shows where a move is. The current (as of Oct 28) fractal dimension of gold is:

Here we see the big picture (monthly chart) for gold's fractal dimensioning including the 1 1/2 year consolidation since last March, whose end was called to the week. The 30 and 55 levels for the fractal dimension are important because they indicate when a significant move begins full of energy (55) and when a move is nearing exhaustion (30). The big move up in late '05 through May '06 began with around a 58 as did the big climb starting late in '07. As you can see, our current climb starts at 63 and is only beginning on a monthly basis.

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