GTU – 30 Jul

GTU (Central Gold Trust) is my chosen proxy for physical gold for those in the  unfortunate position of being trapped in a paper position for gold as a consequence of being forced into an employer sponsored direct contribution retirement plan. I believe it offers the best possible structure to survive a transition to Freegold. Unlike PHYS (Sprott’s Physical Gold Trust), the physical gold cannot be redeemed for shares and does not offer the opportunity for a large shareholder to move on the bullion. Additionally, the board of the Trust is elected by the shareholders and is far less likely to fold the Fund for the purposes of acquiring the gold. PHYS can be shutdown at the discretion of Eric Sprott at any time.

The technical picture for GTU looks to be at a critical inflection point if you believe the Fed rumblings of another round of QE is imminent (I do). With a successful test of resistance yesterday, price closed above that level for the 2nd day. In doing so price exceeded the Bollinger band for the 4th day in a row, which is forcing the bands to expand and is indicative of rising volatility. The next level of resistance is coming from the 63.13 level and support is going to be the recently breached resistance at 62. Additionally, support is coming from the 100 day moving average at 61.38.

RSI is not yet indicating an over-bought condition with a moderate reading of 63.55. Stochastic is however in over-bought territory with a reading above 80. Look for 3 days above 80 to change the character from simply over-bought to accelerating momentum to the upside where all pullbacks become buying opportunities for a continuing move higher. MACD is breaking away from the neutral line.

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Te expanded view shows the importance of the 62 level as a pivot point and a very strong level of support and resistance for price since March. A well defined intermediate trend channel is in place and shown. Upside resistance is shown in approximately $1 increments all the way up to 65. The 200 day moving average, currently at 63.13 is a major level of resistance that if cleared will signal a major shift in sentiment to the bullish side. Major technical damage must be repaired before this chart takes on a true bullish stance. The major moving averages are all jumbled up and 18 day moving average must pull the 45 day MA up above the 100 day MA, then the 100 day MA must rise above the 200 day MA. At that point the MAs will be arranged in the strongest possible fashion, bottom up from the longest duration to the shortest duration, providing support for price.

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The 1 year chart shows price on the verge of a breakout from a year long descending triangle consolidation pattern. If the current price level can hold in support it will lend credence that the breakout is for real. the next major resistance levels come in approximately in $6 increments, at 68 and 74.

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The long term monthly chart is encouraging. I have placed an Andrew’s Pitchfork on the chart that shows potential levels of support and resistance for a continuing uptrend. Price often remains within the upper or lower trend channel, where the center line becomes a pivot point. Price is coming back up into the lower trend channel after a slight breach of the boundary. Also, price has found support where it has before at the 20 week moving average.

The technical studies indicate that bottom potential has been realized. RSI has found and bounced off of long term support at 50. MACD is bottoming and starting to hook. Stochastic is starting to bottom as well very near to over-sold territory. In fact, stochastic is at the lowest level since shortly after inception of the fund. I think a move to QE by the Fed propels price over the rest of the year to 75, and later new highs.

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