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Gold Trade Update 2013-01-21

This is just an update on my gold trade from the futures blog entry on Dec 28, 2012. My bullish gold position is still open, and appears to be going in my favor, so far.

I will post a daily gold price chart for the February 2013 contract. Keep in mind, however, that my actual trade was made in the December 2013 contract. As my goal with this trade is somewhat longer termed that the February contract would allow. I had considered trading the June 2013 contract, but I decided on the December instead. December gold contract prices are roughly 10pts above those of the current February prices.

I will list a few of the technical analysis and fundamental analysis reasons that I have grown even more bullish in gold than I was when I initially made the trade. Rather, its not so much that I am more bullish, but rather I feel that my bullish opinion is getting validated and confirmed by market and environmental behaviors.

Lets us observe the daily gold prices chart for February gold.

daily gold prices chart for gold trade
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First, let us talk about the technical factors at play.

Technical Analysis

On the daily chart, we can quite clearly see that a nice MACD divergence has formed. It is several days past, now, but it does give a clue that prices may be in for a nice rise. There is also another, unmarked divergence that extends about 2 months. This most recent smaller divergence, is also a nice double bottom, or W bottom. Which some people say is bullish. Well known Investors Business Daily founder William O'Neil seems to think this type of W bottom is one of the strongest technical analysis signals.

The slow and the faster of the daily moving averages have started upticking. In fact, assuming things don't change dramatically for the negative, I suspect the faster moving average will be crossing above the slow one this week.

We have seen prices close above the faster moving average for 5 sessions, including today's. Two of those closes have also been above the slow moving average, including today's.

We have also seen prices break above the high on January 2, 2013, which is labelled "1" on the chart. We have had two days, including today, in which prices closed above the Jan 2nd closing price. This also means that we have had our highest close in a 1-month period, going back to the Dec 17 closing price. And we have seen two straight weeks of higher-trending prices.

To me, this paints a good picture from the perspective that a bullish gold trade could be a profitable investment. If you aren't in a long trade right now, I'd suggest waiting until prices break above 1700 and close there (February contract). If such a thing occurs and prices break above 1700, I will wait for a pull-back, perhaps back to near 1700, and consider compounding my position based on technical analysis at that time.

Fundamental Factors

Let us now go over some of the fundamental analysis for the gold trade market.

We are seeing some situations develop in Africa. First, we have the mining limitations in the news for South Africa. This is just another small clamp to add to bullish sentiment. At least, it certainly doesn't add bearish sentiment. We also have war developing in North Africa. An unfortunate series of events, but again do not detract from the bullish sentiment developing.

We have Bernanke telling us that quantitative easing is still on the books. Printing more money seems to add fuel to bullish gold sentiments. We also have Obama and Bernanke pushing hard for a raise in the debt ceiling. This goes hand-in-hand with the money printing quantitative easing policy of the recent American political administrations.

We have heard that Germany wants to repossess its gold being stored in the USA. Does the USA even have it? Did they sell it off long ago hoping no one would ever notice? We will see what this situation holds in store for the gold market, but my inclination is to think that it will just add a little bit more fuel to bullish sentiment in the gold markets.

Then we have those crackheads at Goldman Sachs that can't seem to agree on estimates. I recal the other day that, in the morning, internet news sites released headlines saying "Goldman Sachs calling for $1200 gold!". Then, later in the afternoon, the same and other websites were going on about "Goldman Sachs calling for $500 gold!". I don't know who's smoking what, if its the newspapers or the analysts. Anyways, Goldman Sachs is releasing these pretty extreme estimates without really giving time frames and it just seems like they're trying to spin the market. When these big boys start trying to spin the market, you know something is up.

IAMGOLD seems to think the exact opposite of Goldman Sachs, IAM says we'll see $2500 gold within two years. I wonder who knows more about gold prices, miners and producers, or economists and financial analysts? I guess we'll find out within an unknown time frame which way the gold trade will take prices.

Finally, my analysis of fundamental COT data tells me that we will see higher gold prices soon.

I probably come off sounding like one of those gold bugs, but I'm not. I'm just pretty bullish in gold at this time. At any rate, I do have my stop-loss orders in place, and I will exit this gold trade if I have to.

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