gold price - tag category postings

My current take on the gold market is quite simple because the gold market is structured in a way that makes the current analysis very clear.

The chart above is the monthly gold price chart.  It is very clear that the gold price has completed a valid ‘sign of strength’ breakout as shown by the tri-arrows.  That sign of strength breakout was very significant in that it was also a confirmed breakout north out of a very large inverse head and shoulders bottoming formation.

But now the gold price is retracing and it is doing one of the most common occurrences you will see in any market, index or stock.  And that is simply a retest of the breakout area, in this case the 1000 level.  Retests to the breakout areas on low volume have the potential to be very low risk entry points for going long.

But there are a few important things I would like to see on the monthly retest of the 1000 level on the gold price.

1. I prefer to see price touch the 1000 range but then bounce off of it as if it was stepping on a bed of hot coals.  So we want to see a monthly bar test of the 1000 level but then a very strong intra month reversal that closes at the top of the monthly bar’s range.
2. I do not want to see the gold price ‘hang around’ the 1000 level for too long a period.  In addition, I definitely do not want to see it break under the 1000 level again.  Perhaps it could break under 1000 for a very brief period, but it had better be quick.  The reason why is that we do not want to see the gold price succumb to the magnet of sub 1000 levels.

If we see sustained breaks below the 1000 level and weekly and monthly closes below that level then I will have to conclude that the gold bull market will go into hibernation for several years.  That is how critical this level is in the context of the entire chart structure in my opinion.

Breaking below 1000 would potentially set up a similar topping pattern to the one that occurred in the mid 1970’s gold bull market.  There was a similar slightly higher high and then a break down back under support.  It eventually led to a 50% price correction to 100 dollar gold price.  A correction of that magnitude from gold’s recent all time highs of 1200 would put it at 600.

So, to be clear, I still believe that the gold price is in a strong bull market.  But my condition for the maintenance of the bull market is that the gold price holds with strength the 1000 level.  If it fails in that regard, then I am going to have to flip to very bearish on gold for at least a 1 to 2 year period and be open to the idea of close to 600 level on gold.

Gold is getting hit bad today and if you look at the dollar amount on kitco.com it looks a lot worse than if you just focus on the price chart.  The GLD ETF was overdue for some type of consolidation and using the employment report news today seemed like a good enough excuse for the big money crowd to slam it down.

Right now my take is that we are going to enter some type of sideways consolidation perhaps a month long before going higher again.  I say that because I think today’s price destruction in the GLD combined with the huge volume should be enough damage to start a trend change/ and or consolidation.

The chart above is the GLD ETF in the 2007 to 2008 time frame.  The red arrows point to heavy selling days that damaged the up trend enough to get the GLD into consolidation mode for a while.  So I am expecting something similar to what occurred in the chart above.

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There is in my opinion a blockbuster trade developing in the gold market right now.  It is one of those slow motion type developments that usually catches people off guard.

This has the potential to be a very big trade in my opinion.

The chart to the left is a simple representation of what I am talking about. I will go into more detail on this in future posts.  You can click on the chart to the left to see it full size. The trade developing is a combination of a symmetrical triangle pattern in the gold price in addition to very bullish seasonals coming in September 2009.  The red shaded area represents the very bullish seasonal time frame for the gold price.  The green shaded area represents break out territory of the gold price from this several month congestion area also represented as a somewhat large symmetrical triangle pattern.

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I just thought I would let everyone know that any thoughts I have about the gold market (gold price, gold mining stocks, or gold mining indices) will be done over at LetsGold.  I just felt that gold is an important enough topic that it deserves it’s own forum.  So again go over there to hear my latest thoughts on Gold.

The gold market is a peculiar type of market since I have been watching it from 2003 onward.  It tends to have big spike up rallies but then big retracements only to be followed by another big spike up rally.  It is also a small market compared to most others and at least so far I have noticed that the mainstream public does not appear to be fully participating in this market in any meaningful way yet.

So there should be lots of interesting things to come in that sector going forward from a technical perspective as well as from a grand public perception perspective and investor psychology as well.

Perhaps you have heard the term ‘gold bug’… those devoted followers of gold who have a real passion for the sector and to a certain degree turn it into a religion.. I do not fall in that camp, at least not yet.  Any time one mixes fervent passion for a market it just seems like it is an accident waiting to happen.  Better just to jump along for a ride in anything, whether it be real estate, tech stocks or gold and then jump ship before everyone else does.

We are here to make money, take money and then go home. That’s it end of story.

So again all gold discussion from now on will occur over at letsgold dot com, not here at bestonlinetrades!

The gold price has accomplished a feat so huge that it may never ever be seen or repeated again for at least half a century or more.  So if you are reading this, pay attention because you will probably never see a pattern like this again in your life time.  The gold price has formed a cup and handle chart of massive proportions.

I was tipped off about this pattern by a friend of mine name Roland.  Thank you Roland for this outstanding observation!  Sometimes the most obvious patterns have a way of hiding from you, maybe because some of them are so slow to develop. 

The pattern is called a cup and handle for obvious reasons, it looks like a tea cup with a small handle.  This is not the rarest of patterns but still popular and was made very popular by William J O’Neil and his Investors Business Daily investing publication.  The cup is a large rounding bottom type formation and the handle forms near the old highs and represents residual selling that precedes a breakout to new highs or new all time highs. In the case of the gold price we are looking for new all time highs.

This beast of a pattern is…

A Massive Twenty Nine Years Long !

The entire pattern is 29 years long. So that means I was 10 years old when the cup portion of this pattern started forming. So I would have had to observe the gold price at age 10 and then wait and watch it form the cup for about 28 years and change. 28 years and change! That is a long time to wait for a pattern to develop!

The chart to the left is once again the actual gold price as of 01/02/2009.  What is interesting is once again there appears to be a smaller cup and handle pattern that seems to be saying gold wants to breakout.  The measurement target of this smaller pattern is roughly 1040 gold.

This means that if this smaller pattern is valid, we should see in early January a fairly fast and swift move back up to the old all time highs in the gold price.

But wait there is more.

Here again is the more recent action of the gold price as represented by the GLD gold ETF.  You can see that the pattern has the look of a large flag pattern. And you can see the smaller cup and handle near the end of the flag.

So if this smaller cup and handle gets a breakout, it means that price will be above that white downtrendline on the flag.  So by definition that would say the breakout is in effect.

So we essentially have a very large cup and handle pattern of 29 years in length. But then we have a smaller cup and handle pattern within the very large handle of the whole 29 year pattern. Does that makes sense?

Certainly the gold market does not have a reputation for making things easy.  So as bullish as all the above charts look, I am still a little bit weary it will play out exactly like this.  We cannot rule out one more violent shakeout to the downside before things start cooking.

Markets seem to have a habit of doing that. Shaking the tree as much as possible before the big move.

Lets see what happens.