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July 15, 2009

Micromanaging the Gold Price
by Gary Tanashian

From last weekend's NFTRH41:

"Anecdotally, I see a gold sector that has quieted down considerably. That is good. Things now seem to be in the realm of chartists micromanaging the decline, looking for trend lines and projecting downside targets, support, etc. With each passing week, we hear less and less about the vaunted Inverted Head & Shoulders pattern that was imagined in gold in response to immense inflationary policy by our friends in government. These are all bullish proceedings, but you must have patience and keep in mind that, as galling as it will feel to inflation believers, there is downside potential prior to the real bullish price objectives, the next of which is 1300."

I spoke too soon. The pattern is gaining some attention this week. But this time, the attention includes some of the negating kind, for the reasons I illustrated two months ago; drum roll please... no prior downtrend. This from an NFTRH subscriber:

"Hi Gary: For the longest time, you were the only person that I saw who was claiming that gold's weekly intermediate term chart was NOT an inverse H & S. And believe me, I read tons of articles with corresponding TA calling the pattern an inverse H & S, and this has been going on for months. I never saw anyone else who was thinking along your lines in that regard until now. Don't know if you saw it but Merv Burak, a certified market technician (CMT) wrote an article yesterday and the particular points he made were as follows:

'As for the intermediate term pattern, the left and right shoulders can be seen on the right side of the chart with the reverse head in the middle. Unfortunately, I DO NOT subscribe to these being reverse head and shoulder patterns. They are more legitimately potential double top patterns which I had talked about previously.

Head and shoulder patterns are trend reversal patterns and therefore for a reverse head and shoulder to be present (suggesting an upside break) you would have had to have had a bear market move leading into the pattern. For a normal head and shoulder the lead in trend would have been a bull market trend. In neither of these cases do we have a bear market leading into the formation of the pattern and therefore we DO NOT have a reverse head and shoulder pattern.'

The full article can be found here. Regards, Bruce"

I have given up trying to figure out why the gold price is so intensively micromanaged by people who would claim it is the only real money on earth. If it is real money, then it is not just another FOREX play to be paired off with other plays and charted into oblivion. As I have always written, and as was taught to me by a real gold guru, 'gold is not about price... gold is about value.'

Obviously Mr. Burak is looking at it from a technical perspective and is telling it like he sees it. I have not read his material in several years but from what I recall, he is not afraid to put forth his unbiased technical view, whether right or wrong. That is what TA is all about. It must stand separate from fundamental views. Insofar as one needs to manage the price of gold for trading and working a world full of 'plays' out there, then this is the way to go about it. With deeply held beliefs firmly in check while TA and sentiment analysis guide the way.

Well, it has been a while so I guess I will do a little micromanagement of the gold price myself. Actually, nothing has changed whatsoever, but this can serve as a review. Here we see the weekly chart of gold. Months ago I published this post negating the inverted H&S but showing another bullish potential, an ascending triangle with its ultimately bullish objective of 1300. This level has been our target in NFTRH all along, but... and in this case the 'but' is crucial to players and casino patrons far and wide... the lower uptrend line needs another successful bump for the pattern to be actualized. Failing that, I have noted a support level at or just below 700 that should be bought like mad by anyone who needs exposure but loves a bargain. Then again, when you are talking about value in a monetary world gone mad, I would think that the need for exposure surmounts the desire to get a steal.

A somewhat uneven symmetrical triangle has been added to the mix, but there is really no functional difference between the two patterns. They both need a test of the lower line and they both ultimately target the 1300 area. Bullish objectives could still be many months out. The weekly MACD is not pretty and implies room to drop to the lower uptrend line.

Now, having had the 'gold is not about price, gold is about value' mantra hammered home to me several years ago when I was but a fledgling gold market player, I have truly found this simple concept invaluable in managing my tack with regard to the various market plays. That is because even though gold may (emphasis on may because there will likely come a day when the metal surprises everybody and tells we TA geeks to go jump in lake) decline in the near term, its ratios to the various assets of hope and positive correlation are what count (or should count) for gold stock traders and for macro market forecasters.

I am bullish on gold. I am certainly not telling readers to be bearish on it. I am simply asking you to be aware of the potentials for its price, both to the upside and the downside and of the timeframes that are likely. It is a good bet that when gold finally does launch for real, it will do so without some of its most would-be ardent believers aboard. It will launch amid fear and agony. That's the way this market works.

Gary Tanashian
http://www.biiwii.com/

Disclaimer: biiwii.com does not recommend that any trading or investment positions be taken based on views expressed on this site. If you speculate or invest it is suggested that you consult a financial advisor qualified in your area of interest.