Investing in the Big Picture: Gold is on the verge of a change in trend

April 30, 2012

Gold is on the verge of a change in trend

by Scott Pluschau

Gold climbed a set of stairs for most of today's Comex trading session on the 5 minute chart, and is at the upper trendline resistance of a perfectly parallel downward sloping channel on the daily chart. If gold breaks out on a surge in volume I will be extremely focused on trading gold to the long side until there is a reversal or my near term price target of $1,722 is reached.

A breakout of the channel could lead to sideways action, or range bound trading (Horizontal Development), but in my opinion the break will be something the Bulls need in order to consider trading gold again to the long side with any conviction. I certainly won't be looking to trade on the short side afterward. I would prefer to see the breakout during the Comex trading session.

The legacy Commitments of Traders report has been trending bullish from the commercial traders lately. In the four COT reports in this month of April the commercial traders reduced their NET short position by 17,839 contracts. At 100 ounces of gold per contract and a price of approximately $1,650 that is $2,943,435,000 worth of gold they have bought in about a month if my math is correct on everything. If this trend in the COT report continues and gold makes a move back above $1,800 I think we will see $2,000 before $1,700 again.

However, a failure to break out of this channel with some follow through or confirmation might be just what the Bears need to pile drive gold back down below $1,600.

I am looking forward to some potential great trading opportunities coming this way.

(Click on chart to expand)