Gold – 6 Jun

“Gold” painted a short term higher high before the big downdraft all but erased the gains of the day. Have fun out there trading this paper. The whipsaws make me laugh. So much easier to stack the real stuff and wait for the implosion of the $IMFS. Even after the sell off, the chart still shows a brand new short term uptrend defined by a higher high and a higher low. Price did pop outside of the Bollinger band for the 3 consecutive day before being pulled back into the bands. Resistance will continue to be the Bollinger band and then the 100 day moving average at 1664. Our old friend 1880 is standing by with very stiff chart resistance. Support is the 1599 swing high, then the 18 day moving average that is at 1578 and is starting to climb. 1530 looks like the floor and very strong support.

The technical studies indicated divergence from price earlier, where the blue trend lines took on positive slope while the price trend line remained flat. Divergence was forecasting that price reversal and higher prices were in the cards. The big white candle the other day was the confirmation. Basically the narrative says that the Bernank is going to have to QE and indicate this in the next FOMC meeting. This is the elixir of happiness for all things paper, the assurance that money is going to be injected into the system. Never mind that it is base money that defines the dollar that is being injected. Base money is the dollar’s reference and QE redefines the meaning of the dollar to something less than what it originally was. QE is nothing more than debasement of dollar, period. Worse yet, it is irreversible, contrary to what the Bernank says.

I kind of disagree with the narrative in that I believe the Bernank waits until the stock market really throws a tizzy before he moves in an overt and public QE position. The recent weakness in stocks really hasn’t been severe enough to get the ball rolling. Also, when any whiff of good news wafts by, the market rallies like it did yesterday. That tells me that the level of despair in the stock market is really marginal and certainly does not warrant the Bernank Bomb. I would expect a test of the 18 day moving average support in the near future. Success there will set up a decent base to run for 1680.

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The wider shot shows price has popped through the top of the down trend channel. Along with this, RSI has popped above the down trend line on that study as well. The 1630 level looks to be rather strong resistance and will take some sustained effort to clear. The big white candle needs some help holding up a move to 1680. Again, I see a little base building here before price moves higher.

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The weekly chart shows price at the upper boundary of the descending triangle consolidation pattern. We see 3 distinct tests of the 1530 area and it has proven to be very strong support. RSI is neutral and stochastic has crossed the 20 level from an embedded state. That suggests the next price target should be the nearest moving average above, in this case the 18 week MA at 1659. Typically when stochastic has been this low a sustained rally follows. This assumes of course that the long term trend indeed resumes.

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Here is the big picture chart, the monthly. This says all is well in the paper world of gold. Paper gold is acting like real gold and the market sees it as such. Only the a few of us know differently, the Giants and the Freegolders that walk in their footsteps. All the moving averages are properly aligned in order from shortest to longest duration in support of price. RSI is just back to above neutral and stochastic is at the lowest level since 2008. When stochastic lost embedded status back in late 2011, the initial price target was the nearest moving average below, in this case the 18 month MA. That price has been tested and is holding. If this bull market continues in paper gold, we will see price move higher off of this MA, currently 1621.

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Here’s a closer view of the trend situation. The trend is neutral and 1800 must be breached in order to resume the long term uptrend. One would have to conclude that we are approaching an inflection point where price resumes its move higher short of a massive liquidity event like we saw in 2008. I do believe the next time we see a 2008 it will be game over for all things paper, including paper gold. Another thing that can be seen on this chart is the severity of the 2008 pull back as compared to the current one. It is clear that 2008 was far more severe and it was truly a liquidity event. The current correction seems to be more descriptive of a market that is being deprived of excess liquidity rather than one like we had in 2008 where the fear was of a total loss of liquidity. I think we are just marking time here until the base money floodgates are opened again in earnest.

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