Answering the Gold Question

My overall feeling is gold is still a good trade, but there are pullbacks that are deep to the 150-day moving average that happen 1 or 2 times a year and this level has shown consistency as being a good place to be a buyer. The current question is what does gold do from here, move higher or pullback to the long term mean average?

There are so many undercurrents in the PM space, fundamentally gold is difficult to analyze.

One trend I do suspect that we will see develop is the bargain gold trade, which is in buying the miners, but this s over a long term perspective, not a swing trade-we'll leave those trades for the Miners trading system.

One of the fundamental questions is what effect the Dodd/Frank bill has on gold, silver, oil and various other asset classes that trade on large leverage on the OTC markets now that the bill is taking effect. In the consensus interpretation of the bill, which Bernanke himself says is confusing, it seems even hedge funds or at least a large portion of them may also be banned from trading on the OTC markets. In the short run, it would seem that those positions would need to be closed. The bill supposedly goes in to effect on July 15th of 2011, but many OTC market places are requiring customers to close positions prior to that date. From a common sense perspective, it would seem that this would put downward pressure on gold as massively leveraged funds close positions. There's also the question of what the market does over the next week or two and whether there's a safe haven flight to gold?

 Here's the weekly 3C hart of GLD, while there's been some slowing of momentum, it certainly does not look like there's an imminent crash building.

 On the daily chart, (speaking of false breakouts), GLD had a false breakout in the red box, the daily 3C chart confirmed this and in fact warned of it. Since there's been a mild positive divergence and gold has bounced back some, but 3C is NOT confirming this bounce by following price higher.

 The 15 min hart shows some more details of recent trade starting with the false breakout, the positive divergence at the lows around the 1st and a current negative divergence as GLD enters the area I defined several days ago as "gong to be sticky" as far as resistance goes.

 For intraday trade, we saw a late positive divergence yesterday afternoon and snce GLD has been more negative in to higher prices today. It's important to note that prices today are in the area of the triangle's apex, which is typically a resistance area.

 MoneyStream, once again as I explained earlier can have some excellent daly signals, is also signaling some trouble ahead if you look at the relative price points and divergence.

 Here's the 150-day moving average and the pullbacks that I mentioned that are seemingly great areas to buy. While our current top shares some characteristics with the white box, overall, I think it's more similar to the red box, which did pullback to the 150 sma.

Looking at the same moving average with pullbacks at the white arrows, we see some negative 3C activity on the daily harts in the red zones. It seems the current activity is the most severe of all of the former levels while would make sense considering gold's valuation now.

While this is a tricky subject and there are many markets not represented in our charts and many markets that will be shutting down, causing a scenario unlike any we have seen in the past, my gut feeling is still that GLD will see a pullback to the 150-day moving average. It may be at that time that hedge funds and other speculators forced out of the OTC markets (which in itself could move gold lower), may look to the 150 sma as an opportunity to get back in to their gold positions they were forced out of by the Dodd/Frank legislation.

Feel free to send me your thoughts on the subject. We may see a great opportunity with a great historical track record present itself.