Gold: A Long & Short-Term View

02/07/2013 10:50 am EST


Thomas Aspray

, Professional Trader & Analyst

Gold has been consolidating since reaching a high near $1,800 per ounce in early October, and MoneyShow’s Tom Aspray goes prospecting for buying opportunities should the yellow metal finally break out of its current rut.

As gold prices have grinded lower from the early October highs and stocks have skyrocketed, the interest in gold has continued to decline. The flurry of bullish recommendations in late September was in sharp contrast to the high bearish sentiment evident last summer.

The high-volume selling last November was a sign that the bears were back in charge and that the correction from the September 2011 highs was not over yet. As I noted in a look at the yearly charts, the Spyder Trust (GLD) did close up 6.84% in 2012 but still it was a disappointing year for gold investors.

Regular readers are likely aware that my long-term outlook for gold prices and the Spyder Gold Trust (GLD) has been positive for many years. Even though there are currently no gold positions in the Charts in Play portfolio, I see no change in the long-term trend.

A look at the monthly chart of gold prices and the weekly/daily charts of the Spyder Trust (GLD) suggests that there will be opportunities for gold investors in 2013 but further patience may be required. Going back to 1976, the seasonal tendency is for gold prices to top in February and then bottom in July.

Click to Enlarge

Chart Analysis: The monthly chart of the Comex gold contract that goes back to 2011, uses the continuous contract that includes volume from all open contracts. The expanded view of the 2001-2002 period highlights the important low in 2001-2002.

  • At the end of June 2001, the on-balance volume (OBV) moved above its 21-period WMA for the first time since October of 1996.

  • The following month, it pulled back to its WMA before it again turned higher (see circle a) and by the start of 2002, it was in a clear uptrend, line 1. The bull market was underway.

  • As the vertical lines illustrate, this has been in the cast for the past ten years but in some instances the monthly OBV made a new high the month before prices peaked.

  • The confirmation of each new high in gold prices (lines 2-5) was a sign that the bull market was intact.

  • Often times the OBV has led prices higher as in September 2007 when the OBV surpassed the high from early 2007 as it closed at $681. This was a good leading signal.

  • By early 2008, gold made a new high of $1,033 that was again confirmed by the OBV.

  • The new highs in November 2009 (line 7) were also confirmed by the OBV.

  • From March 2010 until August 2011 (line 8), the monthly OBV made a series of higher highs, but in August, gold had traded above the monthly starc+ band for three consecutive months, which was a strong warning sign.

  • The monthly OBV confirmed the 2011 highs consistent with a positive major trend as has developed a 13-month trading range and is currently below its WMA.

NEXT PAGE: Do the Weekly or Daily Charts Look Better? |pagebreak|

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The weekly chart of the Spyder Gold Trust (GLD) shows a broad triangle or flag formation (lines a and b) that goes back to July 2011.

  • GLD has closed below the 20-week EMA, which is currently at $163.08 and a close above the mid-January high at $164.40 would be a positive.

  • The quarterly pivot is at $165.51 with the downtrend (line a) at $170.60.

  • The weekly OBV dropped back below its WMA in early December, which was a sign to protect profits on longs.

  • The OBV tested support in early January, line d, that goes back to October-December 2011.

  • The OBV has turned up and a move back above its WMA would support the view that the correction is over.

  • The OBV has major resistance at the downtrend, line c.

  • There is initial weekly support at $160 with further at $158.39-$159.15.

The well-defined downtrend on the daily chart, line e, from the October 4 highs is now at $164.18.

  • There is initial support now at $162.20 to $161.75.

  • The chart shows that the 61.8% Fibonacci support from the May-June lows is at $158.21.

  • The equality or 100% target that was calculated from the October high to the November low is at $158.24.

  • The low on December 20 was at $158.39.

  • The daily OBV briefly violated its uptrend, line g, in December that goes back to the June-July lows.

  • The OBV is now just slightly above its downtrend, line f.

  • A move in the OBV above the December high should confirm a daily bottom formation.

  • The 50% Fibonacci retracement resistance is at $166.23 with the 61.8% resistance at $168.08.

What it Means: The signals from the monthly analysis are the most reliable and though it may seem unlikely now, I would still expect gold and GLD to make new highs in 2013.

There has been improvement in the weekly studies as the OBV could move back above its WMA in the next few weeks. As for the daily studies, while another drop is not out of the question, a couple of consecutive higher closes on volume of over 14M shares would turn it positive.

This is contrary to the seasonal tendencies but the technical always take precedence. Therefore, aggressive investors should look to establish initial longs at slightly lower levels and add if further support is tested. For the more conservative, I will look for an entry point once new buy signals are generated.

How to Profit: For the Spyder Gold Trust (GLD), go 50% long at $162.25 and 50% long at $161.66, with a stop at $157.29 (risk of 2.9%). Recommendation tweeted before the opening and should now be 100% long on the opening at $161.24, stop at $157.29.

For a further discussion on using the OBV on multiple time frames, sign up to receive today’s trading lesson.

Editor’s Note: If you’d like to learn more about technical analysis, attend Tom Aspray’s workshop at The Trader’s Expo New York, February 17-19. You can sign up here, it’s free.

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