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Gold Pullback. The Technicals

Stewart Thomson
Mar 9, 2010

1. Is gold trading as a commodity, a currency, or both?

2. I believe the answer is:  Mainly as a currency, but the fact that aprox 70% of mined gold usually goes into jewellery cannot be ignored.

3. Another fact is that gold seasonals dictate a possible intermediate top in late December.  This time it topped in early December.

4. The gold price has been “ruled” by the massive head and shoulders pattern on the weekly chart (Gold Weekly Chart), so the usual late sept/early oct hard sell off not occurring is most likely a function of the action of two factors: a. The hedge fund momentum buying, trying to milk the technical chart pattern.  b. The action of Barrick acting in the comex open market buying futures contracts to cover off their hedge position.

5. Theme “numero uno” for me continues to be:  Hold the amount of gold you can be comfortable with should price either decline to $700 or rise to $1400.  If you bail on current holdings if gold moved towards $700 or started buying crazily as it rallied towards $1400, you likely are positioned very very badly, here and now.   Your gold holdings become a crapshoot, rather than an ultra solid investment in the world’s lowest risk market.

6. If gold were to leap $50 in the next second, you should have an overall feeling of comfort regarding your core positioning, and the same should be true should it receive a $50 spanking.  How you feel has a lot to do with how you act.  Really work hard at getting your holdings into your “comfort zone”.  You can then “let that gold flying fish” get away if price spurts suddenly, and if it tanks suddenly you don’t wonder about hitting the sell button.  It takes more work and patience than many think to get to that “sweet spot” but it’s a CRITICAL task if you want to do not just well in the market, but have a balanced life.

7. Sammy the bull notes that many major mkts often make significant lows in the mid march timeframe.  That’s only a week away from today’s date.

8. I would add that gold as I write this has dropped $30 from the recent highs at $1145, to $1115 this morning, the fact is that $30 of weakness must be bought.

9. How much to buy?  If you look at what I term the Liquidity Flows reports, the COT reports, you will see that the banksters typically add in the range of 5000 contracts to an existing 150,000 contracts position. That equates to a 3% addition to their position.  Sometimes, they add more into $30 of price weakness, sometimes less, but it isn’t a double of their position, and it isn’t none.  They are responding to price calmly, rationally, and modestly.
10. If you look at how most investors operate in the market, they might buy a position in a stock at price A, then do a 2nd buy at lower price B, then maybe a 3rd but more uncomfortable buy at a lower price C.  Now they are players in the market at 3 price points.  Unless you are a professional trader, I’ll bet you spend 99% of your time at prices below 2 of your 3 price entry points, and most likely below all 3.  Most investors don’t even use 3 buy points, they use just one!

11. The head and shoulders pattern on the gold weekly chart has been shown a zillion times in the gold community.  The problem has been when it’s time to take action, few have.

12. The breakout upside was viewed as potentially false.  That cost them $200 an ounce.  Then came the “demands” for a pullback exactly to the neckline.  What’s the difference between buying 1050 and 1020, or 980 for that matter?  I don’t see any major difference.

13. Sadly, at 1045 the banksters went to work and gold investors put on a classic lemmings show, with their “the banksters say gold is a bubble, so it is, sell everything now!” clown act.  And the banksters went on the buy.

14. Gold soared a hundred dollars an ounce from 1045.  We’ve retraced about a third of that as of this morning.  Once again, gold investors are losing their focus, losing sight of what is happening on the weekly gold chart, the chart that continues to literally rule gold’s price here and now.

15. Price has corrected in a clear parallel down channel and last week closed upside. If you look closely at the red supply line I’ve drawn in, you can see price could correct to anywhere around the 1100-1115 area and create a classic pullback from that breakout.

16. Aggressive options traders should consider using weakness over the next week to take action on gold with longside bets.

17. Seasonally, the upmove that occurs classically from the mid march area (but don’t bet big money that price must bottom in mid march, this is the market and anything and everything is possible) is followed by a significant but choppy upmove.

18. Price can then decline to a lower low or least a significant low.

19. Again, given the fact that gold is being ruled technically by the head and shoulders weekly chart bull continuation pattern, price declines are likely to be reasonably shallow.

20. The technical indicators on both the gold bullion weekly chart and the gold stocks GDX weekly chart are showing the market attempting to make a bottom.  The daily charts show a short term top. Here’s a look at the GDX. GDX Weekly

21. Notice in particular the short term 4,8,9 time series of MACD has given a buy signal.  Usually, that is followed by the other series, including the 12,26, 9 flagship.

22. Looking at the daily chart GDX Daily Chart you can see the exact opposite picture in the technicals, with sell signals being generated on the lead MACD series.

23. What if price doesn’t stop after a shallow sell off, but instead blows back down into the parallel channel and starts taking out lows?  After all, this is the gold market, and the charts, in the final analysis, are just lines in the sand drawn at whim by the banksters dangling the funds around on puppet strings to buy and sell to create the charts with their actions.  Well, first off, we’re already more than blessed with how this massive head and shoulders has continued to play out in a picture-perfect action of price.

24. So if price were to do something “anti-pattern” that shouldn’t be taken out of context, so long as price has not violated the right shoulder low, which is at $860.  Secondly, even if price did violate 860, I’m a gold buyer of that weakness. There is nothing I see in the current sell-off to indicate anything other than the usual over-leveraged fundsters on the bail at the hands of the banksters who I’ll give you 99.999% odds are on the buy today with their largest buys right into today’s lows. The question is, what are you doing in the gold market into today’s lows?


Mar 9, 2010
Stewart Thomson
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