Gold – 9 Feb

Paper gold looks to be failing again at resistance near 1750. As Dan Norcini noted, we now have three daily attempts that actually breached that level but were repelled later in the day. It looks to me that the 18 day moving average remains the target and initial support at 1710. This was the initial price objective when stochastic lost the embed (3 consecutive day above 80). Resistance remains at 1760. The Bollinger bands are starting to contract which indicates that volatility is on the decline, an indication that consolidating price action is afoot. With the Bernank’s announcement that he is going to essentially provide the bid for the treasury market and pin short term interest rates to zero through 2014, this chart’s path of least resistance is going to be higher. Enough energy must be accumulated for a move up and through 1750, then its off to 1800.

A paper trader is looking at a favorable setup for a long trade. The up trend is clear with a continuing pattern of higher highs and higher lows, with price above the 18 day moving average. Additionally, the trend remains intact as long as the swing low at 1716 is not taken out to the down side. A buy could be executed anywhere here with a stop just below 1716. If price drops to the stop the trend is over and a long should not be present within an undefined trend or a down trend. Of course a physical gold owner can go and work on his sun tan (winter hasn’t come so far in Atlanta) and not worry about such silly things as shuffling paper.

The expanded chart tells me that if support fails at the 18 day moving average, we could see a move down 1670 where we had a breakout from previous resistance.

The long term weekly chart is where the physical gold buyer should be if his objective is to acquire gold when the market is offering a sale and avoid purchases when it is relatively expensive. RSI is a good indicator of whether a price is over-bought or -over-sold. A reading of 56 is just above neutral which says price is just about at average every day levels, no big discount but not at a big premium either. MACD is a good momentum indicator and it is showing that it is poised for a bullish cross with plenty of room to run higher to levels that have previously shown resistance. Stochastic is a mixed signal indicator, where early on it leads price and is the first indicator to show reversal. So, in that sense it is a momentum indicator. It is also an over-bought/over-sold indicator until it embeds (closes above or below 80, 20 for 3 consecutive days), then it becomes a momentum indicator again until it loses the embed. embedding indicates momentum is increasing and any pullback should be considered an opportunity to add to positions. At this point the weekly stochastic is showing price is headed for over-bought territory but certainly not here yet.

All in all I would rate this as a 6 as far as its a good time to buy physical gold. I am speaking to those who think 1731 is the real price of physical gold and believe the paper gold supply will always be present to dilute the value of physical gold. For those who do not believe this and understand the future price of gold will only reflect physical supply, then disregard everything in this post regarding a trade, any day where physical gold is attainable is a screaming bargain.

As a friend of gold says “physical gold, get you some.”

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