The Gold Trade

As you know, I no longer have a position in gold.  I was stopped out of $GLD on 12/17 as it made a new 20 day low at 108.71, which was also not so coincidently the location of the 50 day moving average.  I love it when your system rules correspond to other technical indicators, it gives me a warm feeling, reinforcing the idea that the market does act in a rational manner, at least some of the time.  I took $13.30 out of that trade, entered on 9/2 at 95.41 as it made a new 55 day high.

If the trade had not been a system trade, and just a swing trade, I would have exited on 12/7 as $GLD broke through the 20 day moving average after putting in a major reversal candle on huge volume the day before.

Anyway, let’s take a look at where gold $GC_F stands tonight.

I’ve placed on this chart the major support levels where we may see a bounce in gold.  Remember that the gold trade must be viewed through the prism of the inverse head and shoulders pattern which was fulfilled when gold broke through the all time high of 1029 back in October.  We topped out a few weeks ago at 1227, shy of the 1300 target measured move off the inverse head and shoulders pattern.  I’ve pounded the table going back a few months now that we need to see a retest of the breakout level at 1029.  This retest will be where the real investors reload.  We could see a move all the way down to 988 as the market attempts to shake out the weak hands.  If this level fails to hold, oh boy, watch out for a complete unwind of the gold trade put on by Paulson and friends.  The 200 day moving average shown on the chart will also be an important level of support.

Strength in the $USDX was the obvious catalyst for the sell off in gold.  It will continue to be an important asset to watch in the gold trade.  I feel we’ve seen an end to the turn off the bottom in the US Dollar as it now find resistance at the 200 day moving average and major overhead levels show on the chart.  The dollar needs to consolidate and test the 50 day moving average.  This should provide a short term respite for gold.

Volume By Price

I want to give a big thank you to @VPgradient who posted this chart on Chart.ly for me this afternoon.  It shows the significant levels of support in $GLD by measuring the volume traded at each price.  As you can see, the 104 level will be a major test for gold, below that and we are looking at 98.

For short term traders, you can buy the bounce by legging into a long position between here and 104.  For longer term investors, I still believe we need to either test the breakout level at 1029, or the 200 day moving average.  Be patient, more investors will lose money playing gold next year than will make money, it’s now a battleground asset, gone are the days of the boring yellow metal.  I still love the gold miners $GDX as an investment.  Names like $EGO, $RGLD, IAG, and $GOLD should be in your investment portfolio for both diversification and growth.

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