The paper gold chart has established yet another short term down trend (yawn) defined by a lower high and a lower low. In doing so yesterday price made it all the way down to the bottom of the current intermediate trend channel. The 18 day moving average is lending support around 1603 and price then closed above that level. In fact, the 45 day and 18 day MAs are both providing support between 1603 and 1608. Resistance remains the 1625 level where 10 trading days have touched this level and only 2 or those days closed above that price. Clearly the Bernank put the kibosh on any breakout above 1625 and it shows the degree that the paper gold market continues to be more of a commodity trade (inflation) than a safety trade (safe haven from devaluing currency). This translates into a wonderful buying opportunity for physical gold stackers who endeavor to store wealth rather than speculate with it.
This chart covers the last 3 months and a cursory look at RSI shows that there has not been a single instance where paper gold has been over-bought (above 80). RSI has spent the vast majority of the time below 50 and speaks to the general malaise and pessimism within the ranks of the bulls. I think that most speculative traders have come to the conclusion that gold will only go higher when the big boys decide that it needs to go higher. Why fight city hall? So it is going to take a sustained breakout above the longer term chart pattern before real liquidity flows back into paper gold.
The wider view shows that it has been 4 months since RSI has touched 80. Ugly for paper longs and good times for physical stackers. 1625 is tough resistance.
The weekly chart shows the pattern that price must break free of in order to generate speculative interest in paper gold. As it turns out the strong resistance at 1625 happens to be the current breakout point. If you are so inclined to believe the price of gold is managed, both on the upside as well as the downside, it is clear that 1625 appears to the cap and 1536 as the floor. A sustained break above 1625 should pique the interest of the spec crowd. The path of least resistance is a move back toward 1536 and strong support. Stackers need to understand that the 100 week MA is now supporting that level and it is unlikely price will fall below there. I love buying physical gold anywhere below 1600. I like buying physical at any price.
The monthly chart shows price being supported at the 18 month moving average. This MA has held during the entire bull market in gold. Unless you think good times are ahead, it should hold once again. However, the end of paper gold will see price fall down through this MA and likely through other longer term MAs. I cannot say when this is going to happen, but I can say that it will occur in a very compressed time frame. The waterfall that results as the death of paper gold occurs will confirm the onset of Freegold and will signal to the stackers that their patience has paid off. These charts only mean something to a trader or to someone who is looking to buy physical at the the best relative value. The assumption is always that the trend is your friend and will remain intact until it indicated otherwise. Therefore, as a chartist I must say the likelihood that price falls below 1600 for any significant amount of time is small.