Gold – 13 May

Paper gold sure has taken a shallacking this last week! This really sucks for the long paper trader and is great news for the physical gold saver and the paper shorts. This market is kept alive by and for the big commercial traders. They cultivate and then feed off of the much smaller and under-capitalized speculators. It is a fine line they tread because without the speculators the commercials have no market. They must continually coax them back into the market after they have applied the wood and then feasted upon their margin accounts. If they go to far, the specs will simply abandon the leveraged paper market in favor of the cash market. That is when paper gold goes up in a puff of smoke and physical gold launches into the inverse waterfall orbital launch pattern.

The sideways pattern between 1620 and 1680 has given way to a sharp down trend channel. Price has spent 4 days below the Bollinger band and is due to rally back into the bands. The shorts will likely be covering here. Resistance is all the way back up at 1625 and support is the Bollinger band, currently at 1586. Further support is off the bottom of this chart around 1540. 1600 has to be taken out to nullify the current downtrend and would signify a higher swing high.

This chart is hugely bearish. Which makes it hugely bullish for Freegold. Freegold happens when the credibility of paper gold collapses, and as a result the price crashes. This chart is telling us that the state of paper gold is hugely bearish. A bullish paper gold chart is bearish for Freegold, certainly on the smaller time scales. It is another matter altogether when considering the long term trend. The long term trend speaks to the dying process of the dollar as a medium of wealth storage. Freegold comes to us as a consequence of that dying process. Therefore the long term uptrend in paper gold is bullish toward Freegold.

Everyday that physical gold is priced by the paper market, the exchange of claims to gold that do not exist, is a good day to buy physical gold. However, if you insist on capturing the very best trade possible, it is time to buy when price is below the Bollinger band. Get some, I guarantee you will like the feel of it in your hands.

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The wider shot shows further support down around 1545. RSI is now over-sold and says we are at the washout stage. Stochastic is over-sold and looks to embed (3 days below 20). If I were to guess what the next few weeks have in store, I would say we are due for a short rally back up to around 1600, and then another wave down to re-test support at 1545. This sets up a potential double bottom. Again, I am a buyer down here in a big way. Ever since 1600 I have been a buyer on credit.

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The 3 year weekly chart shows a flag pattern rather distinctly. A flag is a continuation pattern and represents a time of consolidation. If the paper gold is to remain viable, this pattern must resolve with a breakout to new highs. This has to be because the fundamental case for gold has never been better, and conversely the fundamentals of the USD have never been weaker. Paper gold and the fundamentals for physical gold are diverging. If the commercials lose control of price here, we are accelerating toward Freegold. They know this, so I expect a sharp rally to new highs at some point fueled by short covering and then the accumulation of new short positions as speculators flock for the next shearing. The game is real simple. Sell claims to gold that does not exist to the specs, allow the flock to form as price attracts new sheeple, then when it appears new spec long interest is peaking, engineer a price waterfall in thin volume during after-market trading hours. Rinse and repeat. One day they push this feeding cycle too far and the game goes kaput. Is that day upon us? I sure as Hell hope so.

This chart shows very strong support at 1520. A break below there gets me really interested in the state of all things paper. The 100 week moving average is supporting just below this level at 1513. Remember Exter’s pyramid, all collapsing paper must flow through the dollar on its way into the physical realm and physical gold. This will cause a temporary rally in the dollar based on demand. This rally on demand will be reflected on the paper gold chart.

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If we see a successful re-test of 1525, it will represent a triple bottom and we will have a descending triangle formation. The projection for the breakout higher will be around 2325 and is attained by extending the height of the triangle up above the 1920 apex. One could also say that a double top occurred at 1800 and the projection for that yields 1360. I really do not put any validity to long term TA of gold to the down side. This is simply because the fundamental argument for higher gold only increases over time. If we are heading dramatically lower and ending the long term up trend, it on the back of dying paper gold. TA is useless in that environment. TA is only useful for the paper trade. The value of physical gold is not what your currency says it is. Consequently it cannot be discovered from these charts.

A collapse through the bottom of the triangle would likely test support at the Fibonacci 38.2% retrace near 1457.

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This super long term monthly chart is my favorite. I have annotated the 2 big flags that we have seen for this 12 year exponential uptrend. We are just now reaching the 18 month moving average and support. The 2008 crash violated this moving average support by a good margin and price almost made it all the way to the 45 month moving average. A similar move today would require a price drop to around 1272, right at the Fibonacci 38.2% support level. Price fell 30% from it’s then highest point back in 2008. A similar move today would take price down to around 1350. How’s that for some perspective?

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