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.