I was going to write about the Risk on Risk off trade this weekend but with the big move up in gold on Friday I thought we should look at gold instead. As you know, gold along with silver, broke down from their respective triangles this week which we have been keeping a close eye on.
This next weekly look at the GLD shows the 2008 uptrend channel with all the smaller red consolidation patterns that formed during that advance. You can see how perfect the blue rectangle is with the price action testing the bottom blue rail this week. The rectangle is a completed pattern that still hasn’t told us yet which way it will breakout. As it has formed below the all time high made back in the fall of 2011 the odds favor a breakout through the bottom of the rectangle. Those are the odds but if the GLD starts to rally above the 65 week moving average then we would have to reconsider. For right now a bounce should be expected as everyone and their brother knows this is the bottom of the trading range. The big question is, How Strong are the Bulls? This is where talk is cheap. The bulls need to walk the walk and show us they mean business.
I would like to leave you with one last chart that is a combo chart showing gold and top and silver on the bottom. The blue shaded area shows how each moved to their bull market highs at different times. As you can see silver reached its parabolic high first in April of 2011 while gold languished. There was about a 2 month correction and then gold took off to make its all time high at 1920 while silver fell way short of reaching its all time high made in April. This was a major negative divergence between gold and silver. When I look at this chart it tells me they both got their parabolic move albeit at different times and that a good correction was at hand. As you can see once they both had their highs in place they declined sharply together to point #1 on their blue rectangles. They have been trading in lockstep, for the most part, for the better part of 20 months or so. Both are testing the bottom blue rail of their respective rectangles as we speak.
We are at a very important juncture right here where the gold bugs will have to step up to the plate and move the precious metals higher, not with talk, but with action. Believe me I will have no problem shifting from a bear stance to a bullish stance if the charts shows that is the case. For right now it’s up to the bulls to show the way. I will be watching their every move to see if they really have what it takes to move the precious metals up. This should get everyone up to speed on gold. All the best…Rambus