Update on the Gold Trade

February 02, 2009

Things to like:
1) a series of higher lows
2) the trendline of lower highs has been penetrated

Things to see for confirmation:
1) any pullback is bought
2) price prints over October 2008's highs, signaling the end of "lower highs"

This was what the chart looked like at the time:

Now?

Without benefit of the orange line - you can see condition #1 has been fulfilled - we "backfilled", tested the area we broke out of and people were eager to buy. On that, an aggressive trader would be buying. A reader mentioned this outcome last week.

For someone more conservative in orientation, you want to see #2 "a price point over October 2008's highs" - then we end our half year of lower highs. We are withing spitting distance here with GLD at $91.40 and the October intraday high at $92.

It's hard to get behind gold fully because there is no "earnings" behind it; it's all about sentiment. But the theory is that as all the world's troubled countries race to devalue their currencies (print, print,print) to "save the system," a hard asset should retain its value. Silver is likewise breakout out, although silver has a lot of industrial uses as well.

I hate to chase a move, but from a technical set up, a lot of institutional money could be set to finally jump in here....

Now the question of what instrument to use - keep it simple or go with a miner? etc.

Disclosure: No position

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