Friday, October 23, 2009
Gold - Ultra-short term
Gold looks great right now. Another day comfortably above $1000/ounce, further establishing this psychological price level as a floor instead of as a ceiling. Once you're into 4 digits, changing the first number in the four digit sequence no longer seems impossible. Currently, we are in a short-term consolidation pattern that looks very healthy.
Here's a 1 year daily chart of the GLD ETF, used instead of the Gold price because it shows volume patterns:
Next stop for Gold is $1100 and there's only psychological resistance at this level (i.e. may not actually stop at $1100 for any length of time). The GDX ETF looks like it is about to head for its all time highs:
The opposite volume pattern is happening in the Dow Jones Industrial Average. Volume has fallen off a cliff over the past 6 months as the Dow moves higher while GDX volume has expanded to new impressive highs over this time.
Gold often corrects towards the end of October (a seasonal pattern) as it is doing now. This is healthy and normal. I don't think we'll have to wait more than a week or so for another move higher. If the consolidation lasts longer, that would actually be even more bullish, as this means it is a major correction in this intermediate-term bull trend rather than a minor correction. A major correction that moves sideways without a significant price retracement lower suggests that the upside move that follows it will be extremely strong, so another 2-3 weeks of sideways action would not upset me at all, I just think it's less likely.
Today's commitment of traders report continues to show expanding open interest (i.e. greater number of open contracts), which is bullish. People focusing on the "high" short position don't get it. They should be focusing on the fact that every short needs a long to go with it, so why aren't they calling it a high "long" position? The Gold bears are scared right now, not the bulls. Expanding open interest in the futures market is a healthy sign during a bull run, not a bearish sign.
The institutional investors are starting to herd into Gold and Gold stocks (articles like this are becoming more and more frequent). This is pre-mania type of fundamental news. The big money moves in and the price starts to rise strongly and inexorably for a while. After this occurs for several more months to a few years, retail investors will finally show up in droves and grab the bull by its horns for the final zany rush higher. We are currently a long way away from this point. For now, Gold bulls should just relax, stay the course and enjoy the ride higher.