Gold – 14 Dec

Capitulation.  Leveraged longs bailing out of paper gold. Desperately illiquid looking to raise cash bailing out of paper gold. Newcomers who don’t understand gold bailing out of paper gold. Sophisticated paper traders chasing momentum selling paper gold short. Bullion banks getting paid to borrow paper gold and then of course selling the gold to generate cash for another yield bearing purchase. Capitulation is a great time to buy physical. Thank you paper traders!

There is a saying I am quite fond of that says “buy the waterfall, sell the rhino horn.” I used that philosophy when I was trading paper gold and had amazing results. Since I am no longer interested in paper or supporting the continued credibility of the the paper gold market, I have to modify the saying and say “buy the waterfall, buy physical.” However, trading is often an addition and traders must trade. My presumption is that the people I am writing this for are gold supporters that must trade. I was in this camp and never took up short positions, only long. So I was looking for long entry and exit points. A short term trader would be looking for specific signals that indicate a defined reversal, we do not have that. A longer term trader is looking for maximum opportunity and can sit on short term losses. A longer term trader must be chomping at the bit right now.

RSI is has finally passed below 30 and is now indicating oversold. Price has blown through multiple levels of support and remains outside the Bollinger band. Stochastic is oversold. Most importantly, price has fallen to and through the 200 day moving average, a very rare event in gold. This is an ideal area for physical buyers and longer term paper traders to enter trades. Even though price fell below the 200 day moving average, I believe price will move back up and into the Bollinger bands. Therefore support is the Bollinger band at 1618, which happens to be right at the 200 day moving average. Resistance will be our old friend 1680, then the 18 day moving average currently at 1704. The intermediate trend line shown must be taken out to generate bullish interest again from the paper crowd.

The weekly chart is showing a routine test of the lower boundary of the trend channel, nothing more. Price has touched and passed through the 45 week moving average which has proven to be solid support for 2 and half years. Also, RSI has passed through support that has held for the same period. Stochastic is just entering its support zone. I think the worst case scenario is a move to the Fibonacci 38.2% retracement at 1446. Between current price and that level lies support at 1535 and 1480. this weekly chart says the technical case for gold long term is intact.

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