Gold – 13 Mar

Risk on trade was back in a big way. That means sell paper gold and rotate into stocks. The paper longs that play with paper gold did just that. The paper longs that think they have legitimate exposure to gold were along for the ride. Too bad, so sad. The owners of physical looking to own more simply smile and marvel at their good fortune. Thank you Jamie Dimon, thank you Ben Bernank!

Price closed down hard, but managed to bounce and closed right at support being provided by the 200 day moving average. Resistance is the 1715 area. The battle is here and now at 1680. A break below the 200 day MA paves the way for 1625 and another purchase of physical for me. I use cash at 1625 and credit below at 1600. I max out all credit lines with a revisit to 1524. RSI is moderate with a reasonable reading of 40, plenty of room to run to 1625.

The wider view shows the importance of the current price support and then the 1625 area. I still believe a inverse head and shoulders pattern is in play and will retain that view as long as the 1523 swing low is not taken out with the “right shoulder”.

Here is the proposed formation and the $2080 projection that it renders:

The weekly chart shows that a move to 1625 will just make it to the lower boundary of the trend channel. A breach of that boundary can be expected intra-week and still close at or above it it to maintain the trend line. Price is currently being supported at the 45 week moving average. If the trend line is breached in a convincing manner, support will come from the 1523 swing low, which will be in itself supported by the rapidly climbing 100 week moving average. The only other time we saw a test of the 100 week MA was back in 2008 during the onset of the current financial crisis. It is asking a lot for paper to succumb to this kind of buying in the face of ever-ready physical gold buying. But, you never know, this could be the end of paper gold. It has to happen some day. RSI is back down at support and the odds suggest we might see slightly lower prices, with 1600-1625 being the lowest a physical buyer can really hope for.

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