gold price still not showing its hand

The gold price continues to play head games and drift along on what almost seems like holiday type volume levels.  We just are not seeing a decisive move yet in either direction and the GLD ETF is doing a good job of testing trader’s patience and willingness to stick around for the directional change.  From a sentiment perspective Mark Hulbert says that his HGNSI sentiment index shows gloomy sentiment among gold newsletters:

Consider the Hulbert Gold Newsletter Sentiment Index (HGNSI), which reflects the average recommended gold market exposure among a subset of short-term gold timing newsletters tracked by the Hulbert Financial Digest. The HGNSI’s latest reading is minus 16.5%, which means that the editor of the average gold timing newsletter is recommending that his subscribers allocate 16.5% of their gold portfolios to shorting the market. Three weeks ago, in contrast, the HGNSI stood at 60.9%. So in just 15 trading sessions, the average recommended gold market exposure has fallen by more than 77 percentage points.

I never was a huge fan of this type of sentiment index but we can just take it for what it is at this point. It is interesting to see these types of sentiment numbers when we see the gold price only roughly 10% from its all time highs.  If you think about it that is a pretty amazing stat.  Perhaps the speed of the recent correction in the gold price is what moved so many to the other side of the fence. Perhaps also it has to do with this general idea that the gold price has made a double top?  Certainly the recent persistent rally in the broad market also contributes a little to the negative sentiment of the gold market.

Either way, at least for now I still do not see the gold price showing it’s hand. All things considered the gold price has held up remarkably well in the fact of the recent super spike rally in the broad market… so far anyway.  We could easily be up another 600, 700 points in the Dow tomorrow and so one does wonder how much longer the gold price can deploy its defense shields (been watching too much star trek lately ).

Looking carefully at the little chart to the left we do see what looks like a possible symmetrical triangle developing.  It says that a big move is coming, but again in which direction?  Usually symmetrical triangles are continuation patterns so that would argue a continued move downward perhaps to 85 level.  Symmetrical triangles are also very tricky patterns because they are also equally famous for having false breakouts (shakeouts), returning back to the apex of the triangle and then resuming higher into the previous trend.  If we do get a break down in the GLD ETF but then a return back up to the apex of the triangle and subsequent move higher, then we would have what is known as a ‘busted pattern’ which could have quite bullish implications.

But again the story for now is the low VOLUME and drifting in the gold price as it seeks to find direction.

As I mentioned before, I have been running with the theory that the current correction and consolidation in the gold price would be fairly quick and dirty and then resume the uptrend again for the simple reason that there really is not that much price resistance on the left side of the chart (from the 900 level to the 1000 level). It remains to be seen if I am correct on that point.

It is also once again worth mentioning that the US dollar index is starting to break down badly.  It looks like a double top and I see that the dollar index has made a marginal new high a few weeks ago but then broken down back inside the trading range which has the potential to be very bearish.  If we start seeing a collapse in the dollar similar to what happened in the December 2008 time period, then it is hard to believe that the gold price would do nothing short of skyrocket upwards.

So we still have a few mixed signals. Lets see how it all shakes out. We should know by the end of this week.

Learn to keep your trading profits with this excellent new CD, co-produced by Online Trading Academy and Traders Accounting...