Gold Update

In this update I'm not considering the longer term probabilities in gold except in passing, I'm more focused on near term probabilities as we do have an open trading short in GLD which is near break-even despite some strong gains last week that had it at a bit more of a loss, it has come back nicely to us.


There are a lot of dynamics in gold right now, the big one is central banks buying it up, notably China.

Typically gold is bought on expectations of inflation, note I said "expectations", meaning before inflation has already started as gold is a natural hedge against inflation. However, as near sited as it may or may not be, inflation expectations right now officially are lower than the F_E_D would like, which is not being helped by lower oil prices.

This is the current GLD short position, down about a half percent so not bad at all.

In 2011 after a near perfect uptrend since QE started which caused inflation initially, we had extensive gold analysis and called a top at the highs of 2011 and further called an Intermediate to primary downtrend to follow, this was a very unpopular call at the time as EVERYONE was a gold bug. I even had non-investor friends buying gold and silver off the Internet, which as I pointed out to them were fakes to some extent as gold coins are struck from a single piece and these had a clear seam at the edge in which two separate sides of a coin were joined. 

Whatever their real gold/silver content I have no idea, but they were not authentic coins. I mention this just to illustrate how insane the precious metal frenzy had become and thus calling a top in gold was not a popular thing to do at the time, but not only was it correct, the years following also proved our primary downtrend correct as well.

 The yellow area is where we called the top in gold based on 3C charts and a dramatic change in price's rate of change to the upside, remember changes in character lead to changes in trends and seemingly bullish moves are often red flag warnings that something big is about to change as we recently forecasted on a smaller basis with BABA's Channel Buster upside move.

I suspect the descending-looking triangle through the last year and a half or so, is a long term base in gold getting itself together, but this is another subject for another time.

 Note the daily Sell and buy signals in GLD and their following trends. Also that GLD was below long term support at the buy signal. Gold had outstanding performance on the week last week, but I suspect our short trading position in GLD will hold its own.

 This appears to be long term capitulation or a selling climax at the yellow arrow. As I often note, this doesn't mean there's no more downside or that an upside reversal is imminent, it just opens the door to a new base and usually sees additional downside in reaching that new base area. This concept holds true for nearly all selling climaxes or "Capitulation" so I'd keep it in your tool box (the way the asset acts just after).

 The daily chart in GLD with the buy signal from our custom indicator at the lows (white trendline).

The long term 4-day GLD 3C trend shows confirmation of the uptrend in to 2011 and a clear, large negative divergence in to the 2011 highs followed by downtrend confirmation and what looks like a large year+ base in the works.

I don't want to get caught short when this moves, but I don't think it's there and GLD short is a trade, not a core position.

 The 60 min chart seems to show much recent improvement, although very recent problems near term, that's what I'm looking to trade with GLD short.


 The 30 min chart adds more color. Note the positive divergence at the same time our custom buy/sell indicator based on DeMark principles gave a buy signal at those exact lows. Since though, we have seen a near term negative divergence and it has sent GLD down off last week's lofty run.

The 5 min chart gives even more color to the near term expectations with a leading negative at last week's highs suggesting they were used to sell in to. This may be because GLD will drop back as equities bounce as we expect and not be used as a flight to safety asset or it could be in response to tomorrow's F_O_M_C in which any change of language toward deflationary pressures or diminished near term inflation expectations could send gold significantly lower quickly, the trade I'm looking for.

 And the 2 min chart adds more color, again, distribution through last week's very strong performance.

As for confirmation among Gold Futures...

 The long term weekly chart holds the same positive long term bias as GLD/3C charts do in the long end.

The 4 hour chart shows accumulation at lows and a building positive chart so I do think gold and likely gold miners do resolve to the upside ultimately, but I'm more interested right now in more immediate trends.

 The 60 min gold futures 3C chart show the same distribution in to last week's highs as the charts above, suggesting we do have additional near term lower prices making our gold short look like it will be a profitable endeavor.

The 5 min chart is in line with the recent losses off last week's highs.

When I see a reversal and a probable move building to the upside in near term trade, I'll update gold again, but for now, I expect near term weakness to continue and our GLD short to profit from it.