Gold ETF: Gold Price Trend Looks Suspicious (NYSE:GLD)

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September 13, 2010 10:35pm NYSE:GLD

I am becoming concerned about the gold price trend.  On July 6, 2010 I did a very bearish post on the gold price on a more longer term basis.  Since then I have oscillated back and forth from bullish

 to bearish since gold was able to evade the weekly bearish divergence MACD sell signal.

But now we are in a situation where the weekly MACD bullish cross is not following through and is starting to appear like it wants to do a KISS failure which would likely mean more downward prices to come in the weeks ahead.  This would be very unusual for this extremely strong seasonal time of year for gold.  I should also point out that if this weakness continues in gold it would contrast so far quite sharply with a strongly rising paper equity market in September which is also unusual.  These two observations may become more and more symbolic and important in the days and weeks ahead as BestOnlineTrades looks for more confirming signals.

I know for a fact that gold investors and traders in general are maybe one of the most stubborn group to sell out of their long gold holdings.  I don’t have the actual statistic to back this up but Jim Puplava of financial sense mentioned this fact at one time in the past. 

Heavy reluctance to sell long positions (against a tide of selling) is a characteristic that can show itself in the price charts in the form of a rising wedge where price makes new marginal highs instead of new highs with strong conviction.

Carl Swenlin from decision is the one that first observed this rising wedge formation in the gold price.  I took a cue from that and then looked at the topping pattern from the Mid 70’s before gold corrected 50%.

I am not saying definitively or with strong confidence yet that we are at such a significant topping point yet.  All I am saying is that this pattern is a possiblewarning sign combined with the weekly macd cross failure (so far).  This pattern needs to be watched closely for resolution.

Obviously we are still very early in this week and so far the gold price is still holding quite strong still near the highs.

The chart above shows the 1970s advance and the right half shows the decade of 2000 advance as represented by the SPDR Gold ETF (NYSE:GLD).

The red shaded areas show where the gold price advanced very strongly without hesitation from previous congestions areas.

Note that the top in mid 1970’s was shown by a large rising wedge on the monthly scale.  The gold market at that time had made a top by failing with conviction to advance above and beyond the previous resistance.  It hesitated.

In the current time frame we also see this rising wedge and hesitation to break out to new highs.  Gold has only so far made a marginal new high, similar to what occurred in the mid 1970’s.

There is still the option for the current time frame gold price to blast to new strong highs in September and October to avoid this hesitation, but if we do not start to see some real moves with conviction during September and October it is going to build more and more (bearish) concern in this market.

It is best to take this one step at a time.  I am teeter tottering right now and that is what I am trying to express in this post.  The recent light volume on the August advance in the GLD ETF is also a concern.

Any time a market or stock approaches a new high, it is generally not good to see excessive hesitation near those highs or only marginal new highs because it shows risk of topping formations.

Instead what you usually want to see is price HUNCH right under the previous all time highs and then SPRINT higher like a race horse as gold has done in the red shaded portions of the chart above.

I have been hearing often that the gold market still has to enter its blow off speculative phase similar to what occurred in the 1980 time period.  I fully agree with this.  But the aspect that I disagree on is the potential timing.

The advance that began in 1970 and peaked in 1975 was a very nice and strong run.  However, compared to the run from 1977 to 1980, it pales in comparison in terms of price persistence and trend.

My take is that the 1970 to 1975 run higher in the gold price was the ‘preview run’ that was the first massive warning shot the gold price was sending to the world.  It was the big warning flare up in a star lit night sky.  But the REAL advance was the blow off 1977 to 1980 run.  THAT was the supreme speculative public gold bubble that mainstream public participated in.

The first run was about 5 years long before the midpoint 50% correction.  The 2010 run so far is about 10 years long.  Hmmm, I see a pattern here.  The current 2010 run is about double the time of the first 1970 run of 5 years.

The corrective leg in the mid 1970’s (the 50% one) was about 1 year and 6 months long.  So does this mean that we are now going to go into a 3.2 year downward 50% corrective leg in the gold price?

I am just thinking aloud here and speculating on longer term themes.  The near term and intermediate term is the main focus for now as we see how the current patterns evolve.  Again, gold can still evolve bullishly the next month and a half, but we are going to need to see this market prove itself in the coming months…

This is at this point at least a possible developing story here on the gold price.

Stay tuned for more updates and developments . . .

P.S.  There is also an interesting correlation between the overall stock market 1970’s structure and its relation to where the gold price was and when the gold price peaked out.  It is very interesting that the current stance of the gold price, the rising wedge pattern and also the current stance of the stock market is similar in configuration to the mid 1970’s period respectively as well.

Written By Tom From Best Online Trades

BestOnlineTrades covers many different aspects of trading, from commodities to stocks, from indices to ETF’s.

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