Gold – 16 Feb

Paper gold is tracing out a textbook flag pattern as it consolidates the big move from the breakout at 1680. Notice the Bollinger bands have contracted and that is the best indicator that volatility is going to increase soon with a breakout, either lower or higher. The 18 day moving average has been providing support for this flag pattern and has been tested 5 days in a row and held each time on the close. The daily swing lows are probing support at 1716. The short term pattern on the chart is a higher high and a lower low, therefore neutral. 1760 remains as overhead resistance. Further support lies below at 1684 being provided by the 100 day moving average and the Bollinger band. RSI has largely worked off the over-bought condition and is poised for a move higher. Stochastic is neutral and isn’t offering anything particularly useful. The chart looks like it could continue to drift lower down to the Bollinger band around 1690. I think the the fundamentals support a breakout higher from the flag and another run at 1760.

The expanded daily chart shows divergence between price and all three technical studies. Price formed a double around the 1765 area, but technical RSI, MACD, and Stochastic all formed higher highs on the 2nd top. This suggests that price will break higher to resolve the divergence. Again, I say price breaks higher on expanding Bollinger bands.

The weekly chart shows smooth sailing and plenty of stored energy for a run to the all time high at 1920.

For those trapped in employer funded retirement plans such as 401ks and Defined Contribution plans, I offer PHYS as the best physical gold proxy available. My employer puts 15% into my retirement plans without any contribution on my part. Nobody should think that anything other than physical gold in hand is safe and will provide the benefit of Freegold valuations. So do not contribute a single dime voluntarily to PHYS or any other gold derivative. With a good bit of luck, perhaps PHYS will survive the transition to Freegold, but it will need a lot of help. First, this fund like any other derivative of gold will require a functioning exchange to allow liquidity. Also, Sprott Asset Management must decide to keep the fund open and not liquidate it with cash settlement. The government must not move to either seize or otherwise impair access to the assets in the fund. The government must not change the law or otherwise change the rules as to what type of assets can be included in these type of employee sponsored retirement funds. As far as I can determine it is a long shot, but it is better than doing nothing.

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