Gold – 9 Jan

Gold traders are traders of paper. They use very schemes to execute trades, I know because I used to be one of them. Most people that anyone reading this will encounter are small fish, small speculators who figure they have an an angle because they “understand” the gold market. The facts however support the opposite, the angle is held by someone else and the small spec is nothing more than a food source. This “someone else” is the large and infinitely capitalized entity that utilizes powerful trading strategies that the under capitalized small spec lacks. These entities almost exclusively use technical trading signals in conjunction with powerful trading algorithms. They use technical signals because other people use technical signals, including their source of nutrition, the small spec. They understand that group think can drive price action. This is why I believe any trader must understand technical analysis.

Now consider a manipulated market. If you are a manipulator, it is beneficial to attempt an intervention when the market is most “ripe” to accept your bid. You will therefore pick vulnerable technical situations where traders are looking for an excuse to exit their positions. Also, to paint a chart at critical junctures in order to stifle potential trends or trend reversals is highly desirable. If you are trading against a dedicated manipulator or an entity that has an angle or advantage to the herd, you must be able to recognize zones of vulnerability. We are presently at such a zone.

I no longer trade gold, paper or physical. I buy and hold physical gold, period. Technical analysis has become very one dimensional for me now. I simply look for extremely over-sold situations and I then buy. I continue to post charts with trend, support and resistance, and technical indicators of momentum and extreme price action because there will be a day when these charts are meaningful again. Also, I enjoy charting and miss trading somewhat. It keeps my mind engaged. But, make no mistake, these charts are meaningless. Gold is going so much higher that any of the buy or sell signals provided by my charts are simply noise. If you can acquire gold and have it delivered to your hands, it is a the bargain of a lifetime. The day is coming where gold will no longer be available, nearly at any price or quantity that a small fish can handle.

Look where the paper gold price found resistance. Right at the 200 day moving average, the bellwether moving average that is a long term line in the sand and determines whether the bulls or the bears are in charge. Also, it just happens to be the upper boundary of the current intermediate down trend channel. This is a wonderful place for the weak longs to bail and the short to apply some leather. As long as price remains above the 18 day moving average, the pros will be looking for a reason to be long. Unfortunately they do not have a good setup to minimize risk. They have a short term higher high, but they do not have a defined higher low that will lock in a new up trend. So they wait. The established short has likely covered some time ago but is looking to re-enter a short trade. It is not prudent to short above the 18 day moving average, but a move below 1598 gives a potential green light as long as a trend is in place. Technically the short has the same problem the long has, there is no short term trend in place defined as a lower high and a lower low. The short wants to see a reaction low followed by another lower high. However, the thing that emboldens the short is that he has something the potential long does not have, the intermediate trend at his back, a well established down trend.

The Bollinger bands are getting very narrow and indicate a break in low volatility is nearing. The manipulative short wants to paint the chart here and drive price lower toward the lower Bollinger band, then to support at 1523. The advantage is with the short. I will be personally pleased with a move back to 1523 and I will be a buyer once again at this level. Price is at support and a break higher will be contained by the Bollinger band, which is right at resistance being supplied by the last major swing high at 1643.

I see sideways chop in the future between 1643 and 1520. Best of luck to the paper longs. I strongly urge you to abandon the paper trade and acquire physical gold. Go to FOFOA and read the blog in its entirety. Learn the concept of RPG – Freegold to understand why you need to acquire physical gold.

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