Saturday, March 20, 2010

Gold

Watching the charts develop the past couple weeks, I have noticed that the gold price has been forming a pattern that, at first glance at least, looks similar to the pattern formed last summer, right before the great price breakout. See the circled areas on this chart of GLD:



And now that I find myself negative on gold much in the manner that I was back then, I feel the need to address this pattern similarity, because my negativity on gold last year proved to be an embarrassment, and fairly costly besides, so I'd rather not repeat the experience.

The first thing that speaks against a repeat is the alternation principle. I am using the term loosely, but basically you just don't look for the same pattern to repeat twice in a row like this. That's not to say it can't happen, but most of the time when this kind of repetition starts to show up, it ends up that the market is playing a trick. History may 'repeat itself,' but it wouldn't get very far if it kept repeating what it just did last time.

Furthermore, while the two price formations have some affinity on a time-based chart, you will notice that the volume during the two periods is pretty different. We are just not seeing the drying up of volume on GLD now like last summer. Not yet, at least.

Finally, when we view a weekly chart, the pattern similarity loses a lot of clarity.



As far as the short-term for gold goes, I'd like to see some movement, one way or the other, in the PM Fix CROC:



To me it looks like the indicator is set to break lower, but I guess we'll see.

If gold breaks below 1100, particularly on the PM Fix, then we'll be looking at the next support around the CDMA, currently at 1060:



A break below the CDMA and the major target becomes 980, where we should expect tremendous support. But of course I've been expecting to see 980 for a couple months now and I'm still waiting...