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Technical Analysis of gold for medium  term will come out of bullish mode on a close below 1070-1090 gold.

Medium Term Gold Technical Analysis for investors and longer term gold holders. 

Medium term trend is bullish overall, but currently stuck in a trading range of 1040-1240

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March 2 2010 -  Is the Gold correction over on the Medium Term?

In our last update below we postulated as to whether the correction in gold was over and presented a potential scenario where both the Autumn and Winter corrections developed side by side.  If this scenario is correct then the next move in gold will be towards the 1165-1265 area in March with the potential for more.  For the past month, we've been watching the 1130-1135 area as a key shorter term resistance point.  That area was exceeded today as gold got to the 1138 area.  The only resistance area we see on the chart below is the 1143-1163 area

(scroll down)

The weekly chart shows that gold is breaking out of a triangle formation on the weekly charts.  In the last four trading days, gold has rallied from the 1090 area to 1138.   This is suggestive that gold is heading to test the January highs at 1163 and possibly the upper trend line near the 1200 area.  The key now is that we continue to close above the orange downtrend line and the blue moving average on the chart.  From a gold perspective, this equates to the 1100-1110 area.   As long as gold remains above that area, the odds favor higher prices towards the upper channel lines.   

Medium Term Support lies at 1040-1060 and 1080.  Resistance is the 1163-1183 area and the 1200-1325 area.

What next ?

The easy money on average has been made as Autumn provides the cleanest rallies in gold and silver.  That does not mean that Spring doesn't have it's rallies either.  It is just more of a choppy period.  Over the last 10 years March has for the most part has been a difficult month to project. 

Our best take at the moment is gold remains range bound during March in the 1040-1225 range.  We will update when necessary.  For now, the trend is still up as long as we are above 1040.

THE LONG TERM CHART

STATUS:

Long term channel :  Gold is at the upper end of it's price range. Gold needs to bust above the orange downtrend triangle line, then the upper channel line and above 1250 to signal that the SUPER BULL portion of the move is at hand.  If this is a new bull leg that began in 2008, then the 1600-2200 dollar area would be the projection.  As long as gold remains BELOW THE UPPER 5 year resistance line, the potential to correct to the 5 year support line has to be a consideration.  It has done so in every year except 2009. 

Momentum channel:  The green channel lines make up the momentum (upper) and the 2008 uptrend line (lower).  If gold is about to escalate it should hold the 2008 support line or the orange triangle line.  Otherwise gold will continue to act as it has done so during the past five years. 

Moving Averages:   As long as the blue moving average is above the red, THE TREND is up.

The longest term chart

  The longer term price is coming to a head.  Do you see how the two channel lines are converging with the LONG TERM RESISTANCE LINE OF GOLD and how gold's price is squeezed in the middle of these lines.

This type of pattern is not usually bullish but for now as long as we remain above the moving averages (red and blue) the long term trend is up.  THIS IS A CRITICAL CHART.  Should gold break below the moving averages we could get concerned.  Same as the 2008 uptrend line.  IT IS very important to the trend. 

BOTTOM LINE:  The medium term in neutral but the long term trend is up.  As long as we are above channel line the long term is intact.  But be careful here.  Gold is being coiled up as three converging lines are about to intersect ---- and with gold price right there in the middle of these converging lines.

The last time we saw this type of pattern was at the December high in gold.  Be careful over the next few months.

In Summary --- these three converging lines will answer whether we are in a major super bull by exceeded all three lines or if gold is not ready yet for a super bull move again. 

I am bullish long term gold,  but am very concerned about he type of pattern that is developing.  Lets see what March brings. 

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February 18 2010 - Medium Term Chart Update

Ever since the breakout above 1033 and the subsequent rally to 1227 in December, gold has entered into a medium term correction.  Let me put into perspective what I mean and lets discuss the seasonal aspects.

Every season has a corrective point in gold, some stronger than others. That is what the seasonal charts are all about. Before the December peak I had discussed the anticipation of a North American Autumn Correction in Gold for the simple reason because that's what the odds usually favor. This year's came late with only three weeks left in the Autumn season.

The first leg of the correction from Early December bottomed on December21st/22nd right at the winter solstice and  proceeded to rally into January.  From a seasonal standpoint that 180 dollar drop into December 21st satisfied the autumn correction.   

What are we to make of this second leg drop since mid January?  Is this the Winter correction that started early and in a way, balances the lateness of the fall correction?  Although it's just an observation you might appreciate how the combination of two seasonal pullbacks in gold combined together forms this medium term correction length.  And that is the best way I can explain to you the duration of this sideways action in gold and tie in the seasonal aspects that are transpiring that best fits the action. We can see by the chart below that gold touched the top of October prices when we hit 1042 and produced a 4 month low in gold prices. 

The seasonal timeframes call for a high mid February and a low in price usually in the March/April timeframe.  Since the seasonal is an average it allows for a market to bottom early or late.  That is why this current rally is so important to watch as it has the potential of providing the winter low and a rally back to the highs of last December if the SEASONAL LOW IS IN PLACE.  

The above chart shows a sideways pattern. It's a corrective pattern that's usually indicative of underlying strength.  The market wants to go lower but buyers (in this case since October) will not let the price go under the lows thus far established.  The 1000-1040 area is a four month support area and is the most important zone in the medium term.

Of critical importance is whether the low is in place now until the Spring or if gold makes is typical low in the March/April timeframe.

This pullback to the 1044 area in February represented a 50% retracement of the price gain from September to December and the current rally off of that 1044 low is a 50% retracement back up of the pullback itself.

This 1130 price area puts gold right smack in the middle of the range from November until now. We can observed that he 1130 area is really a price point where gold is neutral for the moment getting ready to make its next move.  whether we go higher or lower is a FUNCTION of what it does at the 1130-1135 mid range area.  

Any time gold is above the 1135 area the odds tilt to favor higher prices and a test of overhead resistance at 1063 with the potential for more.  Any time gold is below 1080-1090 the odds tilt to favor lower prices.

We do not know (nor does anyone else) if the seasonal low is already in on gold.  Its not due until the March/April timeframe on average.  In strong years a commodity will usually bottom in price early and top out late.  The autumn and winter pullback could very well have achieved it.  

Bottom line: Gold is neutral in price in this timeframe.  The long term trends are still up and favor higher price into the coming year but right now gold is in a neutral zone.

Gold is in a four month trading range of 1140-1225 and when viewed in this perspective the next significant breakout is really above the highs established in December.  Should gold move above the 1130-1135 area the next significant area will be the January (and yearly) high of 1163.  Thus 1163 and 1183 is final resistance before the all time highs.

MOST importantly is the two moving averages on the chart (Fast Blue and Slow Purple have come together right at the 1110 area.  With price moving above and below it all week its another key area to watch what price does in that area.

Whether the seasonal lows are in place remains to be seen.  For now we can only watch this key area play out and see which way the price moves.  As soon as we have something more definitive in price direction, we'll update this section.

Initial Support is the 980-1026 area should the February low get taken out.

Bottom line:  Gold is in a medium term trading range of 1040-1240 and as long as it is in that range we have medium term neutrality.  KEY IMPORTANT SUPPORT IS THE 1026-1040 area and the 950-980 area. 

Resistance is the 1135 and 1165 area in gold followed by the 1200-1250 area.  We will update when gold begins to show its trend again.  For right now,  gold is smack in the middle of the 4 month range.

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February 3 2010 -  Silver's Most important price point

By Bill Downey   Feb 2010

From a seasonal standpoint a case can be made that Gold and Silver usually make a price high this time of the year.  Of course with the global situation many feel that the metals will continue higher and the risk is missing the boat ride by jumping out too soon.   There is certainly a lot of data that can be construed as inflationary.   The question when using fundamentals is always timing.  The fundamentals usually do play out at some point.  The paradox is of course that if the markets behaved with the fundamentals from a timing perspective then economists would be traders.

The price of silver was one of the big winners last year and the sentiment out there is for much higher price in the future.  And that may certainly be the case.  With all of the information out there it is difficult to not have a market opinion…………….and in other cases or perspective, it is difficult to HAVE AN OPINION.  

We all have our cherished views and bullish fervor on certain investments and the lure of $100 and $200 dollar silver must rank up there with the best of them.  After all silver bulls have been saying for 30 years that we are running out of silver and the time has finally come for silver and gold to have their day. 

My interest in the precious metals is of the same fodder.  I am in the camp that eventually gold and silver will have their place in the monetary and industrial world. 

The majority of the data we see is usually short and sometimes medium term time frames.   The sell off we saw in silver from 19.50 down to 16 dollars has a lot of investors asking and pondering the question of whether silver should be purchased here or not.  Surely if silver was going to triple digit prices that now would be a great time to buy it.   So I decided it was time to take a longer time frame look at the price of silver to see if it offers any clues as to direction.  What I found was most surprising.

The chart below is a chart of the most popular silver ETF called (SLV).  It is from around the April 2006 time frame and represents close to 4 years of data on the silver price.  (The ETF trades a bit lower in price than spot but does a great job of following it).  What was most striking is that if you look all the way over to the left of the chart in late May 2006 we see that the price of silver was just below 16 dollars at its peak.  Fast forward over to last week and ………………………………we see the same price, 16 dollars.   We see the high of 2006 at 16 dollars, the high of 2007 at 16 dollars, the crash break price of 2008 was 16 dollars where silver plunged from, the June price peak of 2009 was 16 dollars and finally, the SUPPORT LOWS OF 2010 is the 16 dollar area.  Observe all the red arrows on the chart and you will probably agree with me that the 16 dollar area for silver is the most important price area of the last five years.  There is no other price in the last four years that has served as a turning point.  During the last 4 years silver has only been above the 16 dollar area twice - Once in 2008 for 6 months, and now this year, for almost 6 months. 

Therefore it is my conclusion that the turning point that must be watched is the 16 dollar area in silver.

I want to now direct you to the bottom of the chart here where this oscillator measures money flow.  Liquidity is the driving force of economies and financial instruments.  Many say that love makes the world go round but I suspect in this day and age it has been replaced by liquidity.  It must be the most important factor and must be what makes the world go round.  At least this is what the government of the USA told us when it had to print a few trillion dollars.  We were informed that if they didn’t print that the world as we know it could stop and disintegrate. 

If you study the money flow indicator you will notice that I have drawn two blue arrows that show where money flow dropped below the zero line.  The first time this happened silver dropped from 19 dollars to 8.50 and the major break took place at the 16 dollar area AND RIGHT AFTER SILVER FELL BELOW ITS BLUE AND RED MOVING AVERAGES.    Now let’s fast forward to today.  Notice how we have achieved another penetration of the zero line.  In fact if we look at money flow we can see that it has been dropping for quite a while now.  Look how the same divergence was in place right before the 2008 crash.   

There is yet another fairly important indicator and that is the moving averages I use on this chart.  Look at how well silver performs when it is above these moving averages and what happens when silver breaks these averages.   Silver is still above those averages, but right now it is in a downtrend heading directly for those averages.

Finally we have one more point and that is the main trend channel lines encompassing the entire run from 2008.  We can already see that when silver touches the upper channel line that price comes down to the lower channel line for testing.

Clearly this CHART is flashing a MAJOR WARNING THAT SILVER IS AT A MAJOR TURNING POINT in the 15-16 dollar area.  It is at an area that has SEPARATED THE BULL AND BEAR MARKET MOVES IN SILVER for the past 4 years.

How about the seasonal aspects of Silver?

The chart below shows the potential for silver to have a sharp move down in the latter half of February and is entering a choppy pattern over the next few months where we should expect price drops.

(See bottom dates for calendar…..top date for nearest futures contract)

The analysis above is not a harbinger for you to sell all your precious metals.  However it should serve warning that we are at a MAJOR INFLECTION POINT IN SILVER that needs to be watched carefully.   Clearly we all have our cherished opinions and they have been hammered into to us over and over as not many are bearish the metals.  And so far I haven’t been either.

What are we to make of it?  When I showed it to my friend Kevin he said:

‘it boggles the mind that silver is now priced lower than it was at this time 2-3 years ago......before the global meltdown, before us. dollar reserves were doubled, all the bailouts and red ink.......”

I think the conclusion we have to draw is that somewhere near this area silver is going to be a great buy or a sell.   There is enough information out there to draw either conclusion.  The internet is a great information place, but it also can provide information to suit your OPINION.   This week I read some great articles on the bullish prospects for gold and silver and I don’t doubt them.  However it is always important to remember that regardless of what you’re told, no one knows tomorrows price.  We may have opinion but none know for sure.  If it were so, the Greeks would have cornered the Olive Oil market a long time ago.  

What we do know is that the Silver chart is warning that a MAJOR PRICE TEST AREA is the 15-16 dollar area for silver.   While there is rampant bullishness for the future, the chart is telling us to pay close attention to this area.  Should history repeat itself, the chart shows that a break of this important area could lead to a test of the 11.50 – 12.50 area where the lower channel lines are.  That is what price did the last time we broke this price area when money flow was dropping.

If the bull market is alive and well then Silver should hold the 15-16 dollar area and a new rally leg should develop however the last 15 years have seasonally shown that the February time frame is a dangerous one for silver bulls. 

Should a major credit crisis develop again like it did in 2008 I think silver could be very vulnerable over a 3-6 month period.  Should we get a drop to the major channel lines it would be a great buy spot.  Silver is not the only commodity that has been going down.  Note the CRB commodities index.

In summary all commodity and stocks markets need to be watched carefully.  The longer we get into this so called recovery the more the government numbers seemed cooked like Japan did in the 90’s.  While the fundamentalists will eventually get their way in most areas, the timing element of silver and gold and any other instrument can swing wildly to the opposite side during times of panic.  There are a lot of bulls and very few bears in the metals.  While I am a bull……………I’m keeping my eyes glued to the price area’s I’ve described for silver. 

There is a time to speculate with capital and a time of preservation.  A 100% run up in 14 months should have us at least watching carefully.

Epilog

For the majority of the time, silver’s a great buy in the June/July timeframe and a good time to be light is the winter time.  (February/March)

May you all prosper,

Bill Downey

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January 20 2010 - 21st Century Bull Market Medium Term update.

Medium term: 

Thus far we our parameters for January are intact.  We've listed support at the 1070-1095 area.  The low for the month so far is 1093.   We've been looking for a mid month rally to the 1160-1183 area.  The high so far is 1163 ..........and we've reached mid month.  What is very interesting is that the January run back up to the 1160 area has reached the upper end of the long term MAIN channel line......and now gold has turned back down.  Let's discuss that a little further.

WHAT NEXT ?

There are two channels on the chart below of the gold ETF (GLD).  The large white line channel is the MAIN LONG TERM 21st Century bull market channel.   As you can see price is at the upper end of the BULL MARKET RANGE............an area that has provided all of the major highs for this bull market.  we can also see that the rally back up in January has stopped exactly at our white resistance line of the upper channel.

Within that channel we have what's called a MOMENTUM channel and it is the ORANGE colored lines that we are talking about.  Look how price was broken on 1/20/09 for the second time in as many months.

A break of that channel has now shifted the focus of gold as down trending and a loss of momentum is at hand.  The odds have greatly increased that a medium term correction is about to extend its second leg down.

What we are watching for:

 On January 12th we stated that our medium term outlook was one where GROWING CAUTION AS TO SEASONALITY must now be a consideration.  What I mean by that is historically speaking, this current rally from September is closer to the end than the beginning.  ODDS FAVOR A PRICE PEAK IN GOLD to develop this winter (as it usually does) and the beginning of a 2-3 month pullback which could and probably will extend to the July/August timeframe.

The ideal scenario is for gold to peak in mid winter, a sell-off or pullback into Spring, a bounce rally into the end of May and a final pullback into Summer before it starts all over again. 

Status:

We've now closed below the uptrend channel for the second time in as many months. This is the first step in concluding that a medium term top is in place.  The second step would be a close below 1095-1106 and the third and confirming step would be a close below the 1070 area in gold.

The 2010 outlook for a potential price low in gold would be the 905-933 area or the 975-1020 area.............but more work needs to be done here in the coming weeks to hone in on price parameters for the low.  The chart above shows the most likely area for a medium term low.  For GLD that area is the 90-102 area.

For the medium term trend itself..............we are now very close to gold giving a sell signal.   Any close in gold below the 1070-1090 area would suggest a test of the 200 day moving average at the 1000-1020 area...........with the potential for more downside.  We'll evaluate the chart pattern should we break down and move to that area.

Paying close attention to the 1095-1110 area is key.  Should gold move below that area, we would become concerned that a much greater correction is already in progress that might have one more low in store for us.  As always, we look at the "odds" at all times.  NO ONE KNOWS TOMORROW'S PRICE.   Success means remaining objective and having an open mind to the possibilities.  Remember that the HUI went from 35 to 500 during the last decade, then collapsed to 150 during 2008.   Suffice to say......ANYTHING IS POSSIBLE. 

BOTTOM LINE: A close below the 1070-1090 area will suggest that a medium term correction is underway and we should expect price to test the 980-1020 area.  Should gold break down a move to the white oval area of the chart would be the most likely place that gold would support. 

Should we hold the 1070-1090 area a subsequent rally into February will be the outlook.  Odds favor a month end low in January.

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January 5 2010 -  21st Century Bull Market Medium Term Breakout

In November (report is below this one) we laid out our case for a medium term pullback.  It was four days from the top.  First we listed the extent of the technical indicators how overbought and over extended they were, and that it was suggesting an end to the rally. 

From a price pattern perspective, we pointed out how the pattern resembled reaching the 2007 breather we took during that up leg and that even the indicators had been in overbought territory for an equal amount of time.  We suggested being on guard at the 1180-1200 area for a potential autumn consolidation to begin. 

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As to the exact timing and the peak we said this:

"There are many dates in December that could provide turn points ----We think the most likely is this coming week or the 11th or 12th at the latest.

While the rally has completed enough time and price the perfect fit would be a touch or penetration above the upper red channel line. 

Bottom line:  The medium term trend is intact but the chances of a pullback is great around the upper red channel line at the 1200-1220 area. "

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The Gold market peaked four days later and the high was 1227..............and we penetrated the upper channel line..................see the chart below.  It is the original chart we published on November 30th.  I drew the FINAL WEEK OF THE RALLY IN to show you the penetration of the upper channel line.  You can see the date from the chart is November 27th.  See our November 30th update below.

November 30 2009 - 21st Century Bull Market Medium Term Breakout

The medium term breakout strategy we have employed ever since we broke above 1010 has been to use the 2007 rally as a template as to what to expect should a bull leg advance develop.  And that strategy has served us well as the price patterns and the technical indicators have modeled the 2007 rally even better than we originally anticipated.  It has served us well.  However, we have come to a point now where the odds are favoring that we get a pullback like we did in 2007 when we were half way thru the major rally. 

Notice how close we are to the upper channel line...the same line we peaked at in the 2007 rally and where a 5-6 week consolidation occurred between the red line and the upper dashed black line. (See circled area in price in 2007 and now. 

Notice how long RSI has been overextended (upper red oval highlight) for approximately the same amount of time at the very top of the chart.  RSI closed at 80...very overextended.

Notice how far we are above the moving averages.

Notice how Williams %R has been extended about the same length of time (Sept, Oct, Nov) as in 2007 before the consolidation took place.

Notice how MACD is about as high as it got in 2007 and its length of time is also similar.

This is all beginning to suggest that this leg of the rally might be nearing an end. 

We want to be on guard here in the 1185-1200 area for a potential fall consolidation to begin in this area.  We say to be on guard, not to sell everything you have.  (LOL).   If there is to be any type of autumn pullback, it obviously has to happen in the next 21 days as the winter season draws near.   But more important is that this price zone is the one area that most likely resembles the point in which the 2007 market took a breather.  Still, price has not EXACTLY touched the upper channel line and there might be a little bit of upside left to this incredible rally we've witnessed in the past month. 

From a monthly perspective, since we are closing out the month we also have to be aware that a NEW BAR begins on the monthly charts.  (We will do a monthly report this week and look at that chart as well)

 In summary, the medium term breakout is well underway but the potential to be at a point of time and price for a medium term pullback has great odds in beginning here or after one more punch up in price.  There are many dates in December that could provide turn points:  Dec 2nd,  11th, 12th,  21st, 22nd.  We think the most likely is this coming week or the 11th or 12th at the latest. 

While the rally has completed enough time and price the perfect fit would be a touch or penetration above the upper red channel line. 

Support lies at the UPPER DASHED BLACK LINE IN THE 1137-1144 area and as long as we have a weekly close above that area, the medium term trend remains intact and bullish.  ADDITIONAL support for gold on the weekly chart is the lower dashed black line at the 1030-1050 area and  at the 970-990 area where the lower channel line and the medium red moving average converge on price.

Bottom line:  The medium term trend is intact but the chances of a pullback is great around the upper red channel line at the 1200-1220 area. 

ANY MOVE ABOVE THE 1250 AREA SHOULD BE CONSIDERED a runaway market and the next stop would be the 1320-1350 area.

Should a correction begin, we'd look for a shallow pullback to either the1100 - 1150 area or something a bit deeper to the 990-1050 area. 

A pullback here would be a nice set up for a rally into the Feb/March timeframe. 

As long as we remain below the upper red channel line odds prefer some type of consolidation to transpire in December.  Stay tuned to our weekly and daily updates for shorter term guidance.

May you all prosper

William

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November 17 2009 - 21st Century Bull Market Medium Term Breakout

The medium term breakout is firing on all cylinders.  As you know we are using the 2007 bull market in gold as a template.  As you can see the INDICATORS REMAIN pegged as I suggested all along they would during a major bull leg.  RSI is a LOFTY 77 ----  % R A 99.1 reading..........and MACD HISTOGRAM keeps putting in higher bars. 

As long as we keep mirroring 2007 -- the trend remains up but a potential resistance area is here.....do we bust above the dashed black line?

Notice that we are at a key area, the black dashed line.

All indicators look the same as 2007.

The price acceleration looks the same.

We are now in November, do we correct like we did in 2007?

If we mirror 2007, do we go to the top of this channel line before correcting ???  then pullback to the dashed black line.

We are near parabolic like we were in 2007.

Odds favor the rally is not done.  Any pullbacks should be just that, pullbacks.  

We are very overbought and a correction would actually be good overall.

The situation remains very bullish but we are so far above our moving averages, that we call this "nose bleed" area.   Medium term investors are holding on.........and the next logical stop would be the top of this channel line at the 1200 -1250 area on the weekly medium term chart.  This coincides with the monthly charts that seem to show the 1180-1200 area.  Look to our daily updates for in-between status.

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November 1 2009 - The market cycles of price and time

In our October Report (MONTHLY BUTTON) we laid out the 8 things that we would be watching for to confirm that gold had indeed broken out of a consolidation pattern that lasted 19 months. Lets quickly review them.

Our Medium Term watch is based on the ability of gold to exceed the upper dotted black horizontal trend line and establish a new trading range.  This line is a 19 month resistance line and when viewed in conjunction with the LOWER dotted black trend line portrays the consolidation price zone/range that gold has been trading in over the last 1 1/2 years.  In the chart below you will notice that we have added a long term (dotted blue) uptrend line that has provided resistance/support over the past three years.  The chart is a busy one and we will go thru each artifact that is on the chart.  

Since we've been on watch, we can see that price has indeed broken above the UPPER dotted black resistance line in October.  Since then we've been monitoring the 1075 -1083 area to see if price can confirm the breakout. We are on the premise that in order minimize the chance of a false breakout we want to see THREE weekly closes above the initial breakout line.   

We've been watching the 2007 bull market as a template of what we might expect if we have entered another bull market leg to the upside. So far, the similarities are striking.  In September, we identified 8 key points of technical monitoring to gauge the progress of this current breakout, and we identified one key thing to look for as confirmation that the breakout is a real one. 

Lets review where we stand. (scroll down) and we'll go thru the 8 points.

8 points of Medium Term Watch

1)                  We need to see price move above the UPPER black dotted channel line and we need to begin to see higher lows on a weekly basis and we need to move above the 1040-1075 area to confirm the breakout price.

STATUS:  NEUTRAL

        While we have broken above the black dotted line, we have yet to break above the 1040-1075 price range. The high has been 1072 (within 3 dollars) and  the monthly closing price of gold for October was 1045.70 (Closed above low end of the range by 5.70) While we have not BROKEN ABOVE THE LONG TERM NUMBER ..........We managed to close the month within the range given.  Going into the FINAL DAY OF THE MONTH, PRICE WAS BELOW 1040, but a late day rally managed to keep us from closing below 1040.  Since we've picked that range, we have yet to have a weekly close below 1040, and we only traded three days (this week) below the 1040 zone.

        I've drawn two arrows that show an October dip in both 2007 and 2009     Incredibly, the October dip in both years occurred right underneath the DOTTED BLUE Medium Term Support & Resistance line.  This gives us some confidence that the line and the dip are credible when viewed in this fashion.  We are not sure however, if the autumn correction has begun or if we have one more push (like in 2007) into November before a 4-6 week pullback/correction takes place.  We think that the dotted blue trend line that we are using on the 60 min chart and which appears on the daily report just about every night is what we are using as a guide to whether we will have one more push higher.  (See daily button to track).  Right now, should we exceed that trend line we would expect one final push into November before the pullback.  Should we fail to do so, then we postulate that we are already into the fall correction.  The fact that the currencies, oil, and stock market broke down in the final week of October leads us to believe that the autumn correction is under way.  That does not mean that gold can't get one push higher, but rather, even if it did, we'd still have to contend with a sideways market as was the case in 2007.  A move above the dotted blue line on the 60 min will tilt the odds that we have one more push up in November, while a failure at that area 1060-1065 and a subsequent close below 1027 will suggest we are moving lower into the end of November.

        One of the KEYS to confirming price breakouts (as we laid out a few weeks ago) is my own rule of wanting to see THREE WEEKLY CLOSES higher whenever I am measuring the validity of a major breakout.  While this does not completely eliminate a failure, it puts the odds on our side if it occurs.

        Longer term readers might remember that my original BREAKOUT target of 1075 for gold is a number that I chose almost a year ago.  I looked back in some of my archives and found it mentioned last April, but I seem to recollect discussing it during the final stages of the February rally from 2009 and even earlier.  I find it amazing that the dashed blue on the chart is pointing exactly there at a time when price has come within three dollars (1072 all time high) of that target and that price and this line have arrived at a key cyclical point in time right at the 1075 area. 

        Now that we have arrived at this price level, I decided to look at the entire bull market in a price and time fashion so as to revisit this 1075 area.  Since it was made some time ago,

WHAT NEXT ?

        Timeframes are important considerations that have to be considered in the analysis.  As you can see by the chart above, November has the potential to create a temporary peak in gold prices and that is supported by the seasonal average we often look at.  With the US Dollar entering it's strongest period of strength for the year, (November) the potential for gold to push higher should be somewhat limited once November arrives.  For the past three years, gold has either moved sideways to lower during this timeframe.  Witness 2007 on the chart. We made a November high for the year, but then price drifted sideways into the Thanksgiving timeframe and did not begin its move back up until mid December. And the seasonal US Dollar chart confirms that November is usually the strongest period for the Sawbuck.

        We are entering an incredibly interesting time period.  The Martin Armstrong cycles (see 10 Red Arrows timeline) are based on two 8.6 week periods (16-18) weeks.  As a subscriber to the Armstrong report in the 80's he used to use a 16 week cycle for gold, and an 18 week cycle for silver.   

        With the work Dave Nichols (Fractal Guy) has done in the further study of these cycles, he has come to the conclusion there is an 8.6 timeframe cycle that exists. These cycles are in days, weeks, months, and years and anyone familiar with Armstrong's work are versed on this cycle.

        Interestingly, two 8.6 cycles equal 17.2 weeks.  The fact that Armstrong used 18 weeks for silver and 16 weeks for gold averages out to 17 weeks.  Additionally, for those who subscribe to the Delta Theory, a full intermediate term cycle is 16 weeks.  So there is a lot of data out there that suggests that around every 16 weeks, there is an intermediate term cycle that takes place.  I have placed a 10 arrow timeline as close as I could to replicate that cycle.  I know it is fairly close as some of his internet articles from earlier this year and a more recent one allowed me to put together this intermediate term cycle on the weekly chart above.  As you can see, we are on the cusp of the PEAK of that cycle.  Now it is not an exact cycle, but the "odds" strongly suggest and confirm that an autumn correction is arriving in this time period.

LETS ADDRESS OUR LONG TERM BREAKOUT PRICE OF 1075

    The chart below is the long term 21st Century Bull Market Parallel Channel.  The upper fat black line is a parallel channel line drawn in conjunction with the lower channel.  As you can see we are very close to the top of that channel and the concern that I have is this.

When the original target of 1075 was put forth last year, it was based on the fact that the test of 1075 would occur during the winter of 2009.  That price peak only reached the 1000 area and since then, we've been through another 9 months of consolidation.  As we can see below, while we have arrived at the 1075 area, and the pullback we saw from 1072 does lend credibility that it is an important point, that long term fat black line has now reached the 1150 price parameter in its November projection.  What are we to make of this? It suggests that even if we get confirmation that this is a real breakout, the potential to PULLBACK in November is a viable possibility.  If this were the case, we would expect a rally to the 1100-1150 area and then begin a pullback to the 1030-1075 area at some point, probably November.  The other scenario is that price will not go parabolic and will peak at this area later in the winter of 2010.     

BOTTOM LINE: Watch 1075-1150 on the upside, but be ready for a correction here as the 16 week cycles seem to be peaking.  If this PULLBACK is the 16 week cycle exerting its force, and if price should move higher from this point, we'd expect a test of the upper fat black channel on this chart.

2)                  We need to see the MACD HISTOGRAM indicator listed at the bottom of the chart to continue to PRODUCE higher bars during the initial phase of the breakout.  A failure to produce higher bars while gold is rallying in breakout fashion will warn that the breakout might be limited in price appreciation.

STATUS:  NEUTRAL

        Up until last week we were in bullish status.  But last weeks bar, did produce a lower bar. (see circled area in the MACD histogram. 

WHAT NEXT ?

        Should we get another down bar in MACD, it would suggest (at a minimum) that the autumn correction is in or about to be in play.

3)                  We need to see the WILLIAMS %R indicator just under price remain above the 25 area.

STATUS:  BULLISH

        We remain above this area and this indicator is still bullish.

4)                  We need to see the RSI indicator at the top of the chart continue higher and even enter the 70 overbought area once the breakout is under way.

STATUS:   BULLISH

        We did enter the 70 area and have pulled back to 67.  While this indicator is still bullish, we are a bit concerned that it has dropped below 70.  We say bullish in that it is still following the same pattern as it did in 2007.  We recognize that this area is usually a signal that price is short term overbought, and we do want to respect that factor. 

5)                  Price NEEDS to have a thrust above the upper channel line when it breaks out.  A 50 or 75 weekly dollar rally should do it.

STATUS:   COMPLETE --- we did get a long range week above the channel line.

6)                  We need to see the GOLD STOCKS participate if this is a true breakout.

STATUS:  BEARISH

        Gold stock index's GDX and HUI did go to new highs, but if you look at the weekly button, you can see that stocks broke down 10% last week.  Thus far, the gold stocks (in my opinion) have not confirmed gold's move.

7)                  We need to see a PRICE PATTERN that is consistent with an impulsive move.   Before the breakout in 2007 price was in a choppy and overlapping price pattern.  ONCE the breakout occurred…………the price pattern became impulsive and price did not overlap.  It just kept going higher from week to week.    Today we’ve been through a massive choppy pattern over the past year.  IT MUST end when we break above the top black dotted channel line.  Choppy patterns are not typical of real strong breakouts.  This current timeframe needs to exhibit the same characteristics.

STATUS:  Work in progress

        Thus far, the pattern has not been choppy.  But now we want to see price break above the 1075-1083 area to flip this indication bullish.

8)                  We need to see price remain above the short term blue moving average on the chart.

STATUS:  BULLISH

        We remain above the fast blue moving average.  It is currently at the 991 area.  As long as price is above that area, it remains in a bullish indication.

BOTTOM LINE:   THE MEDIUM TERM BREAKOUT REMAINS BULLISH and ONLY A MOVE BELOW LAST WEEKS LOW WOULD PUT A TEMPORARY HALT TO OUR SCENARIO OF HIGHER PRICE.  UNTIL WE MOVE ABOVE THE 1075-1083 area, the potential for this pullback to remain in place cannot be discounted.

MOVES above 1065 would tilt the odds in the favor of price moving above the old highs and headed for 1100-1150.

Moves below last week will suggest the pullback is still underway.

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October 26 2009 - Houston............do we have a problem?

Lets get right to the chart.  We've discussed on weekly updates the current situation.  Here tonight, we let the medium term chart speak.

Ever since the price of gold broke above the 1000 area, we've been looking for confirmation in price.  In its simplest form possible, Goldtrends indicated that we needed to see 3 WEEKLY NEW HIGHS on a breakout for confirmation.  The price zone we've used has been the 1070-1083 area as far as the WEEKLY charts go.  Lets zoom in on the last 3 weeks.  On the daily and weekly updates, we've been reporting how we have been in a consolidation for a few weeks, and how we've arrived at our weakest seasonal time frame.  The first crack showed up last week when we failed to get a 3rd new weekly high in the breakout.

Look at the past two weeks on the weekly chart.  Look at how we closed at the lows each week on the bars leaving a few hanging "tails" on those bars. The red bar represents this weeks initial drop and there is a blue dashed line there to watch for potential support at the 1026-1038 area.  This is a potential support along with the dotted black line at the 1000-1005 area.

Lets ALSO ZOOM IN ON THE INDICATORS.

RSI on top of the chart dropped a full 6 ticks and has exited the 70 area.  Warning flag.

William % R here near coming out of oversold area.  (warning flag)

MACD HIST needs to be watched for a potential lower bar that is currently being registered. Would need price to rise before weeks end.

What Next ?

The potential for an autumn correction can't be dismissed.  We see the price range of the top black dotted trend line and the blue dashed trend line as a PULLBACK SUPPORT AREA.  That area is around the 1000-1026 price zone.  

WE'D MUCH PREFER TO SEE GOLD HOLD ABOVE THE BLUE DASHED LINE.

One of the concerns I have is that gold has arrived at its weakest point of the year in regards to TIME. 

Yet GOLD is at its MOST IMPORTANT PRICE POINT IN HISTORY, and SHOULD A BREAKOUT FAILURE RIGHT AT THIS CHART POSITION BEGIN TO DEVELOP IT WILL NOT BE BULLISH.  In fact, it will be downright BEARISH.

However I want to point out one important thing.  The tiny black arrow that I put on the chart shows that gold could easily DIP below its lows of prior week and then reverse higher by weeks end.  WITH OPTIONS EXPIRATION that is still a possibility.  Should that HAPPEN, a RALLY to close the week on the highs .........it would be EXTREMELY BULLISH.  So lets keep that in mind.

On the downside, we have to face the possibility that the INDICATORS could flash sell signals.  It is not what we want, but we have to take what the market gives.  Nevertheless, the final judgment is price.  If the indicators break down ------and price follows, we will be faced with one of two potentials.

First, that an autumn correction is under way that could last most of November.  Closes below the 980-1000 area would send the MEDIUM TERM TREND OUT OF BULL MODE.  Normally, that would not be as important.  But the fact that we are at a HISTORIC breakout AREA IN PRICE and the FACT THAT THIS BUS HAS MORE PASSENGERS THAN ITS EVER HAD ABOARD, a breakdown in price could be deeper than what some gold bulls might think.

The other scenario is that so far...............only the short term dotted blue line has really been broken so far. 

THERE IS NO CHART DAMAGE YET..............BUT THERE ARE WARNINGS THAT THE ORINGS ARE HEATING UP A Bit HERE as GOLD is trying to exit the Earth's ATMOSPHERE.

BOTTOM LINE:

We did not get a Medium Term Confirmation signal last week.  A subsequent pullback has developed.  From a medium term perspective.................we NEED TO WATCH THIS CAREFULLY.  

For now, treat it as a pullback...............but make no mistake.......as I stated in mid October, if the breakout is to run into TROUBLE.........it will most likely be in this price zone. 

WATCH THE 1038 area for short term........................the 1000-1008 area as MEDIUM TERM SUPPORT.............and ANY WEEKLY CLOSE BELOW THE 975-980 AREA will warn that we are in a potential MEDIUM TERM BREAKOUT FAILURE and a very fast decent to 900 would be the odds favored scenario.  For now, lets take it one step at time.

The 60 min gold chart shows a key area and that is THE 980 area in GOLD.   A MOVE BELOW THAT AREA WILL TAKE THE MEDIUM TERM TREND INDICATOR OUT OF BULL MODE into NEUTRAL.  That is a key area to watch on the medium term.

Lets see what the remainder of the week brings................as one day doth not define the MEDIUM TERM TREND.

There's a saying about Medium Term Trading................if your going to PANIC....DO IT EARLY. What they mean by that is if your account CANT HANDLE a 100 dollar correction..........don't put your stops 90 dollars below the market.

BOTTOM LINE:  We missed the price confirmation for A MEDIUM TERM BREAKOUT BY NOT MAKING A 3rd WEEKLY HIGH.  Now lets see what the remainder of the week brings and we will update this important area again this coming weekend, OR ANYTIME GOLD hits a major price area.

SHOULD WE REVERSE AND RALLY BACK UP,  and MAKE A NEW WEEKLY HIGH,  we will re-evaluate the conditions required to confirm the medium term breakout.

We will update this weekend or sooner if required.

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October 12 2009

The gold markets pause at the dotted trend line did in fact prove out to be just a consolidation and the gold market has broken through the key channel line in a long range week.  The September pullback ended when rumor hit that delivery notices were called on the last trading day for the October contract.  The problem was that the banks did not have the gold to deliver.  Rumor claims that up to 1300 dollars per ounce were offered in cash as a settlement but NO GO. The buyer was playing real hard ball. 

Lets get down to brass tacks.  The chart below is the weekly chart and the top RED channel line is the 21st century TOP CHANNEL LINE.  It has only been pierced once, at the 1033 high of 2008.

But IN DECEMBER GOLD, the high was 1060 at the time.  THUS we are now just really breaking above the all time highs when it comes to this NOW FRONT CONTRACT.  There can be no doubt that we are in a major TRANSITION here.  The penetration of the top dotted black line measures the breakout.  We have NOW put in a higher high this week.  If you've been reading the daily update

you know that we've got major short term resistance at the 1075 - 1080 area.

If we move above that area, odds will shift that we could be heading towards the top red line.

I've taken a quick swag at it tonight, but should we break higher, I will hone in on the exact location of that trend line as I am trying to mirror a nine year line on this 3 year chart.

AS LONG AS WE REMAIN above the 1000 area, the odds will tilt to higher, especially if next week brings yet another new high.

There is no magic number how much higher we need to go to confirm the medium term breakout, but any punch higher here could set off another 100 dollar move rather quickly.

MACD, WILLIAMS %R and RSI remain in bullish medium term mode.

Investors remain long and could consider adding at some point. The decision is simple.  Add here, or add when the fall correction has taken place.  If your overweight the metals it might be advised to wait for the pullback.

If your UNDERWEIGHT, you could add a bit here, and then plan on adding some more later this fall when the correction is in force.

In summary.........the gold market has just about confirmed the medium term is going higher and the odds are with it once we break above 1080.  The medium term as followed on the daily report has been in bullish mode since 1014...........this is more of an exercise to confirm the MEDIUM TERM BREAKOUT.

We continue to stress keeping your eyes on the US DOLLAR for the simple fact that gold is rallying the most against this currency.   We believe there is MAJOR MEDIUM TERM SUPPORT at the 860-960 area in gold. 

The October and November timeframe usually has a correction, and we still think there is one.  However, waiting for it could be as futile as those waiting to pick it up at the 985 area.  It gets further and further away. 

Bottom line:  THE MEDIUM TERM IS FIRING ON ALL CYLINDERS and we favor the upside to be heading towards the TOP RED LINE on the weekly chart above, realizing we are at the most critical part of the breakout here and now.  Drops below 1000 would be very suspect at this point.  Pullbacks to the 1020-1040ish area however, can develop at any time.  FAVOR THE UPSIDE until gold shows differently.

may you prosper

William

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Sept 29 2009

This is a medium term time frame update for gold.  We've been tracking the intermediate term breakout potential.   Here is the chart below and where we currently stand.

RSI is rolling over suggesting a pullback may be under way.

A two week failure at the channel line must be watched carefully.  As long as we hold the lows from the past three weeks around the 956-965 area, the medium term might just be taking a break.  Keep you eyes on that area.

Moving average support is the 930, 893 and 848 area.  As long as we hold those areas, the long term trend is still up.

WM % R is coming out of overbought suggesting the market could be beginning a correction.

MACD hist had a lower bar suggesting momentum is waning.

ONLY A MOVE ABOVE the DOTTED CHANNEL LINE IN A STRONG FASHION WOULD INDICATE A BREAKOUT IS OCCURRING.  Otherwise, for whatever reason, the breakout will be on hold for later in the fall or early winter.

So this may be just a pause and consolidation before pushing through or it may be the beginning of the autumn correction. 

ANY MOVE ABOVE the 1050 on explosive technical's will put the breakout at the forefront. 

But as long as we are below the TOP channel dotted line, the medium term will remain in a neutral mode.  Look to the moving averages as support.  Should they be broken, a potential to test the bottom channel line cannot be dismissed.

Goldtrends feels the most important area to watch over the next few weeks is the 923-960 area and the 880-900 area should we get a selloff.

In summary:

Gold bugs should be on alert that the technical indicators and price are indicating a potential pullback.  Until we hurdle back above the trend line and start making new highs, remain cautious.  

What about the seasonal?

We can see that the gold market usually peaks at the beginning of October.  Since this is a seasonal average, last week can be considered close enough.  We see that October is usually one of the weakest months for the gold price.  Therefore, you should be prepared as an investor for a pullback.  The other thing we see is in a normal market, we can expect a choppy pattern in November.  So far this year, gold has followed the seasonal almost to the tee.  Until that changes, we should expect the same.

BOTTOM LINE:  Odds favor a short to medium trend change could develop over the next 6-12 weeks.

SHOULD Gold's price patterns become impulsive, long ranged, and should we break to new highs, then the MEDIUM term will turn bullish.

Until we do that, remain cautious and maybe not fully loaded up.  If we get this pullback, it would be nice to have cash on hand to pick up some bargains.

May you all prosper

William

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Sept 16 2009

With gold's entry into triple digits for a third day investors are asking themselves, is this it?  Is this the big one?  What price will confirm we're going much higher?  Will there be a pullback? 

For those of you who are not chart readers, consider this.  A doctor does not diagnose you by looking at you.  He tests and looks at his charts for results.  Based on those charts he determines how well you are.  

This is a technical update of the medium term time frame for gold.   While the short term trend has been bullish since the beginning of September and while there's been a breakout in price on the daily charts, the weekly charts measure the medium term time frame and they have now arrived at their breakout area.  The medium term is where the market focus goes from traders and early investors to the more "mainstream" participants.  Just think about the fact that CHINA is advertising to the masses to invest in gold and silver.  Can you imagine what that is doing to the markets ?  Initially, they have been rallying since the news hit.  And they're doing it while the SHORT POSITIONS are at their highest.  And its doing it with STRENGTH.  Should the Chinese people embrace the metals,  an explosion could develop.  So, lets get to it.

I've used the ETF symbol GLD so as to obtain volume characteristics.  As of today's close GLD trades at around 100 when gold is at around 1020.  I'm sure there are slight fluctuations to that range.

In order to understand what to look for in a major breakout and new up leg, we have 2007 as our guide.  Here's what we need to see in order to confirm a major breakout is developing. Lets look at it from top to bottom.   Take a look at the rally from SEPT 07 to JAN 08.   Look at that nice long rally.  Now lets see what the charts left for clues to see if GOLD exhibits the same characteristics this time.  

1)  2007: The oval red circle on RSI at the top of the chart shows that in a real BULL MOVE, RSI can stay OVER 70 most of the time and can remain that way for the entire move.  

NOW:   RSI is only 3 points away from entering 70.  While most think that's a sell signal -------its NOT during a major move.  It would also mean that its still very early in this new rally.

2) 2007: The red arrow mid way down the chart shows the breakout in price above the dotted line channel.  Notice there were no pullbacks, no chance to get on until price was 100 dollars higher in gold. 

NOW: Everyone is waiting for a pullback.  When I look at this chart, I ask myself, pullback to where?   If price pulls back under the 950 area in gold or 93 in GLD......it will spoil the "Breakout" look.   No, if this is the real deal............price should advance from here without a pullback under say 975 in gold and 95 in GLD.  And even that is pushing it.

3) 2007: The red line showing the volume increase during this bull move.

NOW:  Volume, after dropping off all year, has suddenly expanded.

4) 2007: The oval red circle on the Wm%R indicator shows that this indicator stayed OVERBOUGHT during the entire UP LEG in 2007.

NOW:  Wm%R has entered the high 80% and while most are saying that gold is overbought, we know that it can stay overbought for a few hundred dollars higher as it did in 2007.

5)  2007:The red arrow at the bottom of the chart shows that MACD turned positive at the same time that all the above technical events happened. 

NOW:  MACD has turned up just as it did in 2007.

Now we have a map as to what was happening then.  We can see that a lot of what was happening then is happening now.  In fact.............its all happening.  The markets always have "odds" if you look deeply.  It would see the "odds" at this moment, is favoring the upside.

What else did we see that is worthwhile?

We saw that indicators can be OVERBOUGHT and as long as they stay overbought, the rally will continue.  It is only when they come out of overbought range should we look to exit.  Meanwhile, a lot of technicians will stay out of the market because their indicators are overbought.  But we have seen that during a bull run,  it should be EXPECTED.

We saw that VOLUME did expand..........we need to see the same.

WHAT NEXT ?

Now gold needs to perform.  Its that simple.  If this is the real deal, gold should continue to move up from here into the October/November time frame and then correct into the December/January period and have one final thrust into mid winter before next springs correction.

So from here on, we just continue to monitor gold's action.

WHAT'S FIRST ?

Well, the indicators are all lined up saying their ready to go as they were in 2007.  All that we need to do now is let gold prove itself. 

We need to see gold move above the top channel (as it is attempting to do this week) and it needs to do it with CONVICTION.   Ideally another 30-50 dollar thrust up over the next week.   The final resistance area near here is the 1035-1050 area.  IT MUST BE EXCEEDED WITH CONVICTION. 

If this rally is already underway, the 1060 and the 1130 area would be initial targets with potential for a spikes higher than that.  As long as the indicators and price action that I've described continue in play, then the market should be readying for a good move forward. 

LOOK for price to now remain above the 965-975 area.   ANYTHING BELOW THAT suggests that this market is not yet ready for a breakout.  If this is the "BIG MOVE" price has NO BUSINESS going back there. 

It is no secret that 4 banks hold most of the shorts and that the COT is at all time highs.  Does this make this risky?  Sure.  Where there is great reward there is great risk.  There's no getting around that.  So you have to minimize that risk if things start going the other way.  It's part of the game.   Should price drop below the area listed above, it will be time to evaluate the market again.

Its in gold's hands now.  And what it needs to do is EXCEED this final dotted channel line on the chart and begin to move higher and make NEW ALL TIME HIGHS.  That what it needs to do here.

KEEP YOUR EYES ON THE NEXT TWO BARS ON THE WEEKLY CHART to see if gold now confirms with a price move.    So far the set-up is the same.  The homework is done.  Now its up to gold.

Lets see what she does.

May you prosper

William

September Medium Term Gold Technical Analysis Sept 5 2009

August 9 2009 Weekend USA

What is the Medium term Condition and trend of Gold?

While gold did not trade in a wide range last week, the forecast for choppy waters has been in full fruition ever since August began.  We've basically been hovering at the 950 area (plus or minus 20 bucks) for well over 3 to 4 weeks.  In this weeks perspective, we're going to look at the medium term for gold. 

Gold's long term trend is healthy and up sloping.  However, when we look at the medium term for gold, we see that we have been in a terrible sideways trend.  Can you believe that the top in gold was seen over 17 months ago and the very BEGINNING of the financial crisis?  Since then we've seen a lot of deterioration in many global facets, but somehow gold has remained under 1000. 

In some ways it is like DOW 1000 was in the 60's in the stock market.  The market would get there, but could never seem to overcome it.  In fact it would take almost 20 years of playing with Dow 1000 before the stock market made a meaningful breakaway.  The reason I bring this up is I want to discuss a few observations from that time. 

During the 1960's when the Dow would reach 1000 a lot of optimism would creep in the markets and the breakouts just seemed to be right around the corner.  But around the corner lay the trails of JFK, LBJ, MLK, and RFK and Vietnam.  The optimism of the 60's turned into the pessimism of the 70's as the first oil shocks and the abandonment of the gold standard led to a mass inflationary period for the United States and thus.........the world.  In fact, when the real breakout came, the majority of market participants was not your average Joe.  And the pessimism that reigned was the feeling that it was a bear market trap.  The rest of course is history.  When the dow broke above the 1200 area, it had one more pullback then marched up (with peaks and valley's) all the way to 14000 over the course of 20 years.

The important point is that not many were bullish when the real breakout came.  And that is what is perplexing about today's inflation call.  It is so overwhelmingly one sided.  Just about everyone on the planet expects inflation and a much higher gold price.  To argue the merits of whom is correct is pointless as gold is about to decide that for us with it's price action in the not too distant future.  But is does bear (no pun intended) pointing out that if inflation ignites and gold breaks out, it will mean that the majority of market participants were correct about the market direction.  And that my friends is not what the ODDS usually suggest.  But they are just odds, and although slim, I guess its possible that every one would be correct on this call.  As Robert Prechter recently termed it "the easiest call on the planet." 

From a medium term perspective, we are at the top of the range in price.  That range is currently the 670 to 1030 area in gold.  Now with the buildup of 17 months of gold hanging around the 850 to 950 area, there certainly is a lot of anticipation about breaking above triple figures.  Now the few times that the Dow broke 1000 in the 60's, it would travel to the 1020 to 1060 area but always turn down.  Therefore if gold is to confirm a breakout we would want to see a close above the 1075-1100 area.

UNTIL THE TIME THAT WE MOVE INTO TRIPLE DIGITS AND HOLD THAT AREA, gold will be VULNERABLE to the downside and the potential to return to the bottom of the RED CHANNEL cannot be eliminated.  As unlikely as it may seem, the potential is there.  For those who say bah, humbug, then fine,  just give me gold closes in TRIPLE DIGITS and I too will put that scenario on the backburner.  But not until then.

If the bulls are right, and gold does breakout, the price appreciation should be high momentum with very small pullbacks for the first few months.

Conclusions and Bottom line:

The medium term trend for GOLD REMAINS sideways until we move into triple digits and get a weekly/monthly close above the 1075-1100 area. 

Support for the medium term is the 830-880 area followed by the 670-700 area.

The optimum time for the next medium term trend to begin is the August/November time frame.

AS LONG AS WE ARE ABOVE THE 865-880 area, ODDS favor the upside to be broken.  Moves below the 880 area will quickly shift the ODDS favoring a drop in price toward the lower end of the channel and suggest a bearish medium term stance.

So keep your eyes on the 880 AREA as a YELLOW FLAG that price is under pressure.............and on the upside, we need to be in TRIPLE DIGITS to return to a BULLISH medium term trend.

May you Prosper

William

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Gold Mid-Year Review  July 24 2009

By Bill Downey