LetsGold !

Gold into 2012 and Beyond…

Hello all. Just to let you know, going forward all future gold articles I write will be written over at Bestonlinetrades.com

I may develop this site more at some point in the future, but for now any new things I have to say about gold will be written at BestOnlineTrades.

Thanks. Tom.

  I have to tell you I really did not like the down move today in the gold price. It broke through the sideways trading range we were in and we saw some pretty heavy downside volume as well.

I can only imagine how frustrated gold bulls are at this time having been so patient since this whole long consolidation started way back in early 2008.

There are number of different operating parameters at play here that are worth summarizing and pointing out so that we have some guideposts for what to expect.  The worst thing about trading and following markets is when you have a certain bias, the market turns on you, and you have no clear perspective why it happened or how much worse it could get.

Sometimes it seems these markets move in slow motion and the final decisions they make sometimes take many months or more, so it can make it even more frustrating when things turn on you opposite to what your bias was.

Anyway, let us just take a quick look at the GLD ETF chart on the monthly scale which is my favorite time frame to look at because it shows the bull moves and the bear moves with plenty of long term clarity.

The main point to be made about this monthly chart is the long white up trendline that has been in force since 2005.  In 2008 that up trendline was pierced only briefly and then price rallied back up above the line and so far has held above it. 

Piercing that up trendline like that makes it slightly weaker. For now that is a mute point but it is something to be aware of.

Anyway before I go on I want to summarize in bullet form the main things happening with gold on a big picture basis:

• We have a large head and shoulders bottom formation since March 2008
• The left shoulder is almost as symmetrical as the right shoulder in terms of time
• This entire head and shoulders bottoming formation is part of a much larger cup and handle pattern that goes back to 1980.
• So far the gold price has held up trendline support since 2005
• The two monthly price swings indicated in the chart above by the very long red arrows are significant because the most recent monthly swing tested the first swing on 48% greater volume. This implies that the high of the first swing will eventually be overtaken
• To keep the head and shoulders bottoming formation intact AND the up trendline support intact it is important that we do not see GLD break that much below the 85 level.
• The MONTHLY MACD remains in a bearish stance and so far has not activated a new major bull leg signal. We must respect this fact and carefully observe for the next significant change with this indicator.

This bulleted summary pretty much says it all for the next 6 months going forward.

Stay tuned.

It may be slow going for the GLD ETF until strong seasonality kicks in during the month of September 2009.  That could mean that July and August are going to be flat to sideways months for the gold price and that the real fireworks will not start until September 2009.  September is the seasonally most powerful month for gold compared to any other month of the year.

In the monthly chart above of the GLD ETF you can see that during the period late 2006 and mid 2007 the gold price traded upwards on an up sloping trendline.  But for 3 months the price of gold broke under this monthly trendline support and then just drifted sideways until September when it broke out aggressively.

That was in 2006-2007, but what about now? Now we find ourselves in somewhat of a similar situation.  We see that the July monthly price bar in the GLD has broken under trendline support.  Now whether or not it just drifts sideways for 3 months like it did in 2006-2007 remains to be seen.  It certainly seems plausible that such a scenario could repeat however.

We have broad market weakness now and slow summer months trading for July and August.  That is a ripe environment for slow sideways trading with lack of real direction.

The chart above also shows two red arrows that point to 5 monthly price bars.  I pointed those out to indicate that the head and shoulders bottom formation that began in March of 2008 is still valid.  And the 5 monthly price bars on each side represent time symmetry.  A lot of the time, but not always, you will see time symmetry on each of the shoulders of the pattern.

We could see 85 on the GLD on a pullback during the next two months and the overall structure of the head and shoulders bottom would still be intact.  Are we going to hit 85? I don’t know, but on a severe broad market correction it certainly is possible.  I just think GLD is going to be dead money for July and August (sideways type action)… so more patience is required.

So for now this is the setup we are dealing with. The gold price likes to take its sweet time before it makes any big moves.  And the GLD has been consolidating for over 1 full year and several months now.  In terms of trading, that is a LONG LONG time.

The GDX gold mining ETF still looks constructive.  Now I have to be honest with you and tell you that while the gold price has been behaving well and continues to look like it wants to soon do a breathtaking breakout above 1000, I have in the back of my mind had concern about the mining stocks and wonder really whether they will be able to continue to steam higher along with the gold price.

The reason why is that gold mining is different than the pure gold price.  Yes gold mining stocks will likely be very profitable with a rising gold price above 1000 but there is this stigma and overhang with the general stock market that seems to make the gold mining sector lag the gold price. To be honest it is really frustrating, but that is just the way the market works.

Will the gold miners break free from their co dependency on the general fearful stock market and start to lead the gold price higher in a massive breakout? I simply do not have the answer to that question.

So What can be said about the GDX Right Now ?

What I can say about the the GDX ETF right now is that it is confined within an up trending channel which still looks constructive to me.  The GDX bumped its head on the 44.23 level which was resistance back in late 2007.  Since then it has been consolidating within the channel.

I did not draw this on the chart above but there is another interpretation you can make that may not seem extremely obvious from first looks.  And that is that the GDX made a significant breakout from a large head and shoulders bottoming formation that started August of 2008 and completed in April May of 2009. So we did see a nice breakout from this large head and shoulders bottom formation and now during the last 4 or 5 weeks (the chart above is a weekly chart), we have come back down to test the neckline of this large head and shoulders bottoming formation.

A retest of the neckline of a head and shoulders pattern is about as common as motherhood and apple pie. It is supposed to happen and it very often does in my experience.

So now we find that the GDX is sitting very close to up trending channel support, and also sitting close to neckline support of the large head and shoulders bottom formation.

That combination is a pretty compelling case for eventual renewed price advance pretty soon. But it is absolutely CRUCIAL that we hold the channel support here and start building higher soon.

July and August may be slow and sloppy months, but then you have September the most favorable seasonal month for the gold market coming up.  So it could very well be that the real fireworks will start in the September time frame on both the GDX and the gold price.

One last thing.  You notice that the weekly MACD looks like it is in a bearish crossover stance. That is a concern.  But also keep in mind that the monthly MACD is in a bullish stance.  We are just going to have to see how much farther down they can take the GDX.  The weekly MACD could be giving a false signal.  But we will know the answer to that once we see if trendline support holds.

I am still waiting. Are you? I am still waiting on this beast of a cup and handle chart to do its thing and get a breakout going from a 30 year cup and handle price chart.  When I think about it, it still boggles my mind how large this price chart formation is.  Yes indeed folks, if you were 20 years old in the year 1980 and familiar with the business of trading in stocks and commodities, then you would have had to wait until you were 50 years old for this cup and handle chart to complete its formation.

30 years of watching stock prices is a long long time for anyone that has been in this business. Heck, just watching prices of any security for more than a few days can be pretty exhausting.

I don’t mean to get too long winded here, but I am trying to just bring light to how huge an event this really is assuming it actually happens.  If the gold price is able to break out and hold above 1000 an ounce, then that by definition should mark the beginning of the breakout.  I am expecting this move to be almost a near vertical type of move that is quite persistent.  Surely there will be down days, but I suspect once things really start to get in gear we will see plenty of repeated up days that mark the epicenter of the breakout.

Never before have I seen a chart so large that has so much cause for an extended move.  The last time we saw this amount of trading cause for a move was the bull market that began off of the 1967 to 1982 sideways trading range that launched an 18 year bull market into the year 2000 in stocks.

Fascinating also is the fact that gold has already come quite a ways since the lows of 2001.  One might think that the move that has occurred since 2001 is too much of a move and that prices are ‘too high’.  But in the context of the whole trading range and pattern since 1980, one can clearly see that the move since 2001 was merely the right portion of this large cup formation setting up for an eventual breakout.

I remember thinking in 1994 during the stocks bull run that prices were ‘way too high’ and I looked at a very long term price chart of the bull market and could not believe my eyes how ‘steep’ it was and that it just seemed almost impossible that prices could go even more vertical… well we know what happened after 1994.  And do we know what will happen to gold after 2009?  I have a pretty good idea.

By the way, it is possible to measure price targets of cup and handle charts no matter how large or small they are.  Simply measure the depth of the cup and then add to the highest price point at the right side of the handle.  That comes out to close to 1800 on the gold price with assuming a 100% probability success rate of the cup and handle pattern.  Bulkowski in his book “The Encyclopedia of Chart Patterns” indicates that cup and handle patterns have a 50% success rate. So even with only a 50% success rate assumed we would still get to close to 1400 on the gold price.

Stay tuned because I have discovered a couple of other important features of the handle on this price chart. More on that later.

Ok today is Friday June 26, 2009.  I have been watching the gold price for quite some time now.  It has been quite a journey and certainly the volatility of last year and into this year has been nothing short of amazing.  The gold market has really tried to do a good job of discouraging everyone from noticing it.  And for the most part I think it has succeeded.

But now it is time to put my finger on the chopping block and make the first recommendation of the letsgold video newsletter.

I am going to use this post here at letsgold.com to initiate the first recommendation of the letsgold.com video newsletter.   The letsgold.com newsletter is not quite live as of yet although I do have links to the signup page and a few banners throughout this site promoting it.  I expect it to go live hopefully by the end of this weekend assuming I can work out all of the technical kinks.

But since this is the first recommendation of the letsgold.com newsletter I wanted to make it a public post to get things off the ground here.  All future recommendations will only be posted in the members area.  A duplicate of this recommendation will be posted and recorded in the members area of letsgold along with some video coverage of the thinking behind it.

The recommendation is:

1. Go Long the GLD etf this morning (it closed yesterday at 92.29) at the market open with a protective stop loss set at 89.75. Assuming the stop loss is not triggered in the weeks ahead, then a 10% trailing stop will be initiated soon thereafter. We will have to see what the market opening price is and I will update it right here in this post at 9:30 am. Right now it is 9:09 am.
2. The second and third recommendations fall in the ‘most speculative’ category. The second recommendation is to go long the DGP this morning at market open with a protective stop loss set at 19.00. No trailing stop will be initiated at this time.
3. Lastly, and also in the most speculative category is to go long the December 2009 GLD 100 Calls at the open. As of yesterday they were trading around 4.00. This one will require more careful watching. But for now as long as GLD does not break back down under 92.30, this GLD call should be held.

Ok there you have it. The first recommendation of the letsgold.com video newsletter.  I am going to put up the first video in the members area going into a bit more detail about my thinking behind these trades, but again the members area is not quite live yet.  Give me until the end of this weekend, early next week and it should be good to go.  I will post in here when we are ready to go live.

Ok, it is 9:30 am now. The open on the GLD is 92.80, and the open on the DGP is 20.47. The ask on the GLD December 100 calls is 4.20, so I am going to mark 4.20 as the entry price.

Ok that’s it for now.

God Speed to all of you.

I think we are entering a very interesting phase of the gold market run so far.  Not that the other phases of the gold market run have not been interesting, they have. But it just seems as though we could be entering one of the most interesting, if not the most interesting phases pretty soon.  Now before I get to what exactly I am talking about, keep in mind that I seem to have a bad habit of expecting things to happen too early in this gold market.  I have been expecting price moves to happen a lot sooner than they actually have.  Perhaps it is a simple underestimation of the necessary price work that is necessary before new major trends can take place.  The gold market is not a tech stock, it is basically a currency, and while currencies do make big and fast moves, in my experience so far they tend to move in more orderly slower fashion than other types of markets.

Ok, so having said that lets get on to what I am talking about.

This is the 8 hour price bar chart of the spot gold price.  It is zoomed in to the portion of the gold price action since March 22nd, the time of the third attempt to break out above 1000.  You can see that the price pattern does seem to have somewhat of a saucer formation of which spot gold has already completed roughly two thirds of the saucer.  You can also clearly see the huge 8 hour price bar that occurred after the Fed announcement of buying 300 billion of long bonds.  That price bar was a huge sign of strength and seems to confirm this saucer pattern.  We have retraced a fibonacci 61.8 percent of that huge rally and now we seem to once again be basing for a new move up that rallies along this saucer support line.

I have drawn in a vertical dashed line of April 2nd which happens to be the upcoming G20 meeting. I have no clue what is going to happen at the G20 meeting or if anything substantial is going to come out of it.  However, I can say that I do find it interesting that the date of this meeting is close to a point in the pattern above that would be consistent with a massive upside breakout.

Secondly, it is worth noting that the huge sign of strength 8 hour price bar on the chart above should be followed by a similar type of move after this retracement which appears to be almost complete.  If that happens then we should be able to get very close to 1000 on this next move and then beyond.

The first chart above is potentially the handle of a larger cup and handle indicated by this chart:

So, is it really possible that the spot gold price is going to reach and break 1000…

Within the next 7 trading days ! ? !

It would seem impossible to think such a thing, perhaps even a little bit crazy. Or not?

Well I will leave it for you to make your own judgment on it.  My own personal take right now is that it certainly is possible.  Possible at least because gold has been displaying large volatility lately and seems to be capable of making big moves in shorter periods of time.  Possible also because we have end of month coming up and end of quarter (window dressing).  If you are a gold mutual fund or hedge fund looking forward to gold performance helping make your quarterly statements look better, wouldn’t you want to paint the tape a little bit going into the end of the quarter to make your statements look even better? I would.  And that should help us close strong for the month of March and the quarter closing in March.

By the way, what has been most interesting about the recent decline in the gold price since March 23rd is how many formerly very bullish market veterans have turned bearish and are expecting big declines in gold.  The Hulbert survey of gold sentiment after the decline from March 23rd is quite astounding.  The fast price destruction really pushed people into the bearish camp.  It has been simple amazing how quickly the psychology has turned. Many if not most of the top traders I follow whom I consider to be very good market timers have also been bearish on gold and are looking for lower prices.  Of course they could still be right, but I just have to admit that I have been surprised how quickly people switched to the other side.

I do not want to over dramatize things, but certainly the next 7 trading days in the gold market have the potential for being very interesting indeed…

The chart you are looking at to the left is the WEEKLY price chart of the spot gold price as of the time of this posting.  Right now we are roughly trading at 888 on the spot gold price which is roughly 27 dollars down from yesterday.

As you can see from the chart on the left that the weekly spot gold price has once again come right down to test the long term up trend line since October-November of 2008.  This is a fairly long trend line and so has good time support on it.  We also see that it has been touched 3 other times pretty clearly.

But again we are almost sitting on this down trend line right now if not slightly under it based on the weekly prices.  Today is also the Fed meeting so we will have to see what if anything that does to moderate this price decline.  There are only two more days left in this week, so Friday of this week is going to determine the final look of this weekly price bar. I point out this obvious point because of the crucial nature of the spot gold price holding this weekly support.  We either hold it or we do not, and we may know by Friday whether we do or not.

So what happens if we break below this trend line?  If we break below this longer term supporting trend line, then to me it definitely warns at the very least that we are in for a much more complex longer duration correction in the spot gold price.  Sometimes you just have to respect a trend line no matter what your belief is.  It is about as logical as you can get in any market.  Now we have not broken it officially yet and it remains to be seen by the end of the week if we do or not.

I wrote a piece over at BestOnlinetrades dot com on the Dow Jones Industrial Average which basically makes the case that we have seen a major bottom in the Dow and have the potential for a very substantial rally perhaps much larger than most believe at this point.  Basically I make the case that the Dow could be making as significant a low as was seen in the December 1974 bottom.  The reason I mention this is because if it is true that we are making such a significant bottom the Dow, it makes you wonder what is in store for the spot gold price.  Given all the devastation that took place during the bear market decline that went into March 2009, one would have thought that the gold price should have easily spiked to 1400 at least, but it has not.  I am not saying it still can’t do that, but what I am saying is that we need to be really watchful about the nature of the rally in the broad market and how it may or may not affect the spot gold price going forward.

In thid mid 1970’s, we did see that the Dow made a spike V type bottom, but at the same time we also saw the gold price top out at 200.  From then on we saw the Dow rally very strongly and the gold price corrected to 100, a 50% correction.  Are we in a similar type situation now?  It is still too early to tell. For now let’s focus on this weekly trend line in the spot gold price and see how the S&P 500 reacts to its down trend line.