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.

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.

It was a quiet day today in the Gold Market.  The gold price as represented by the GLD ETF did not manage to make much of any statement today.  Indeed the volume was also very light and similar to last Friday’s light volume.

Now here is the dilemma. Are we going to break down or break out in Gold ?  The key for me anyway is the March 6th swing high of 92.95.  We need to get over there with some conviction.  So the question is how soon can such a thing occur if at all?  Right now it may be too tough to call.  I think we will see a big move coming out of this recent 2 week consolidation but for me it is too early to say it will be to the upside.

There are a few different crosscurrents right now.  For starters I could make the interpretation that this declining volume is a bullish development, especially the speed with which it has declined.  One could make the interpretation that the especially light volume today is an indication of last remaining sellers being squeezed out.

Then we also have what looks to be a possible 3 rising valleys pattern as shown on the chart to the left (drawn in red).  Now the 3rd valley seems to be forming now and the whole pattern would be confirmed on a breakout with confirmed volume above the peak of the 3rd valley.

This last valley that has formed is also characteristic of a final small handle of sellers from the original old high of March 17th, 2008.  Certainly it was to be expected that we get some sort of residual selling from left over sellers in that area.  Again, the declining volume trend on this handles formation is quite bullish.  I have seen handles like this in the past that also had such a dramatic drop in volume initiate a breakout with high volume seemingly out of nowhere.

Also bullish at the moment is that we continue to trade and hold above the 50 day simple moving average.  The 50 day moving average remains in a bullish stance above the 200 day moving average.  We are also holding support of 900 in the price of gold so far at least.  The low volume characteristic we have seen in recent days seems to suggest we will continue to hold this 900 support.

If we are able to get some upside tomorrow it would certainly be interesting to see what happens to price on a move above the March 6th swing high. It may trigger a short covering panic and cause a quick acceleration in price.

Downside possibilities could be the 85 area on the GLD or near the 200 day moving average.

So for now we will just have to wait and see what the gold price tells us.  I have to say my bias is to the upside, but do not have enough conviction yet based on this setup.  It is also worth noting that the next upwards advance in the price of gold is likely to take out the all time highs.  I do not see another consolidation at the 1030 level again.  It is time for gold to face the music.  It has been given 3 chances now to overtake this all time high, and I would say now is about the best chance it has as any.  Assuming a move into the all time high, there should be significant follow through buying just based on that technical event alone.

One last point that is interesting, tomorrow is March 17th, 2009.  That is exactly one full year from the previous exact peak that occurred in the gold price on March 17th, 2008. Significance? Don’t know, we shall find out tomorrow…

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The GLD ETF is once again at a crucial juncture.  I have to say right off the bat that I believe the GLD is behaving extremely well. I mean how many other sectors do you know of right now out there in this market that are behaving ‘technically well’ ?  There just are not that many to be seen.

GLD is holding supports properly and also has respectable advancing volume versus declining volume relationships that are second to none.  In addition today we bounced (so far anyway 1PM eastern time) back up above the 50 day simple moving average.  The 50 day is currently above the 200 day as well having previously achieved a golden cross (50 day moving average crossing above 200 day moving average) a few weeks ago.

Now if all that bullish information was not enough for you hold onto your seats because I have even more… I have noticed that the GLD ETF has a ‘three rising valleys’ trading pattern.  I have drawn up a chart below and labeled the three valleys 1,2 and 3.  This is a pretty reliable pattern and it has measurement implications for the GLD to about 120.  Just looking at that pattern you get this sense that the price of gold is trying to get a running jump start (like a pole vault champion) to achieve its breakout of the all time high.

The 100 level is a KEY level as I write on the chart to the left because it represents not only the all time previous high (or very close to it at least) but it also represents the activation level of this pattern to make it valid. If we take out the high at 100 then it is saying we should have a really substantial move that makes new all time highs. Why? Because in order to make a breakout of this magnitude valid we need to see a very substantial sign of strength with enough price bar spread and volume to confirm it, otherwise it would be invalid.

The nature of this most recent correction in the GLD has been fascinating.  It has so far been very fast and sharp.  But lets think about this for a second, imagine you are the price of gold and you want to try to trick as many people as possible. How are you going to do it?  Well certainly right near an old all time high you would do a very brutal and fast price correction that scares a lot of people out of the market. Secondly, you would then probably recover back up to the old all time high almost as fast as you went down, and then third you would break out even faster than that so no one has a chance to get on board! Brilliant!

It just seems that it is the nature of the gold market to trick people as much as possible. It is like a bucking bronco trying to shake as many people off before the real move gets going.

One last point that I have been thinking about as well that makes the above scenario legit is that we have less and less resistance on the left side of the chart.  What that means in plain English is that the gold price should be able to move faster and complete corrections faster than it normally would. Make sense?

The gold GLD ETF is once again at a crucial juncture!  By the way is it ever not at a crucial juncture?

The recent decline we have seen over the last 8 days or so has been sharp and fast and may leave many wondering, “is gold done for now?”.  I do not believe this to be the case.  I also do not believe that we have formed a double top in gold as some have talked about.

Instead what I am seeing right now on the gold GLD ETF is a normal 50% retracement of the very sharp rally that began on January 15th, 2009.  There is no question that the rally that began then was strong persistent and covered a good amount of ground.  A retracement definitely was to be expected although I am a little surprised how fast and deep it was to be honest.

But here are two key points with respect to where we are right now in this correction.  GLD has pulled back to it’s 50 day simple moving average which should act as support.  We already know that GLD did achieve a golden cross (50 day moving average crossing over the 200 day moving average). So these two facts are already quite bullish for gold.  By the way how many other indices, stocks or commodities can brag about having accomplished the coveted golden cross now a days??? Not too many.  All the more reason to give the benefit of the doubt to the bulls on GLD.

The second bullish factor that has come into play with the GLD is the volume analysis.  If you look at the chart above you can see that today’s decline was on roughly 19 million shares, but it is important to compare this declining volume to the advancing volume we saw previously and at similar levels.  So we compare it to that 34 million share day price swing.  That my friends is a reduction of 44 percent which is quite bullish in my opinion.  It is hinting that GLD which anyway is at good support at the 90 level does not have the downside energy to keep falling.  We should expect a sharp reaction back to the upside and if we are lucky a price smoothing that holds the 50 day moving average.

This may be one of the most fascinating chart comparisons I have ever seen.  The weekly gold price chart seems to be following the pattern of the 30 year bond when it had it’s enormous breakout leg last year.

A picture is worth a thousand words and I am going to show you two charts here. One is the weekly gold price chart and then the second is the 30 year treasury bond chart.

First we have here to the left the weekly gold price chart.  As you can see on the chart the gold price has attempted 4 separate times to break out of the down trend resistance line.  On the fourth try it was successful and I also have confirmed that the breakout was on confirmed volume as least as represented by the GLD gold ETF.  After the gold price broke out it did what most normal markets do and pull back to do a classic test of new support level.  We are almost just about done with that right now on the weekly gold price chart.  Ok so now let us take a look at the 30 year bond chart and you can see a similar type price setup and then the resolution.

As you can see if you look carefully at the daily chart of the long bond it also attempted four separate times to break out north of the resistance line. It was successful on the fourth try and it too did the classic retest of the new support level. But what is key about this chart is how the price reacted afterwards.  As you can see it moved very fast in almost a vertical fashion to create the huge breakout of the previous high.

I think the gold price has a decent shot at repeating this type of pattern and we should be able to look forward to near vertical price movement on the weekly chart pretty soon, perhaps starting as early as next week.

GoldCorp and many other major mining stocks did a powerful reversal today.  Today may have marked the end of this decline phase that started about a week and a half ago.  Gold mining stocks in my opinion remain still very undervalued relative to the price of gold.

We have seen the gold price get very close to new all time highs and yet the major mining stocks have languished well below their highs. But is all this going to change very soon? I think they have a decent shot at it.  And in fact what we could see going forward from today is that the major gold mining stocks once again take the lead to the upside.  Perhaps this would occur in the environment of a slightly recovering broad market.

Since 17th of December of 2008 we have seen many of the major gold mining stocks essentially ‘put to sleep’.  They have traded in a long sideways pattern for a little bit more than 2 months.  That is not necessarily a bad thing however.  After the big move that we saw in GoldCorp from the panic sell off lows in November 2008, it is only reasonable to assume that this equity needs to catch it’s breath and build some more valuable cause for the next sustained impulse leg to the upside.

Today was indeed a key day for GoldCorp in my opinion because we could have closed at the lows today and that would have forewarned that the correction in the gold mining stocks would continue and go deeper.  But instead we saw GoldCorp take a peek at those low levels and then do a very sharp reversal.  Since GoldCorp for the most part follows the GDX gold mining stock index, we did see similar action in the GDX ETF.

Take a look at this chart of GoldCorp.  You can see that it appears to have built what looks like a very large ascending triangle pattern. 

The supply line is roughly at the 33 level and it has been already hit several times. In addition if you look closely you can see that since the December 17th peak there appears to be the pattern formation of a head and shoulders bottom.  This pattern could soon be confirmed on a resumption back up to the 33 level and then subsequent breakout.  The measurement target of that head and shoulders bottom is about 40 level.

There is actually a much larger head and shoulders bottom formation which has measurement implications to 50 for GoldCorp.  On the GDX a similar pattern exists and measures to 54 range.

I think we may start to see the gold stocks catch fire again soon and start to lead the gold price. Stay tuned.