Gold Price - tag category postings

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.

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…