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.