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KEEPING AN EYE ON GOLD

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In the past several weeks, the FOMC has voted to "expand" its balance sheet until which time economic growth is strong and getting stronger ($45 billion long-term treasuries/$45 MBS). One would have reasonably thought that Gold prices ($GOLD) would have rallied rather sharply - we certainly were of the opinion. But it did not happen given the gamesmanship exhibited by President Obama and House Speaker Boehner. However, the "game" is not over; there is still time for gold to find its footing and finally move to higher highs above $2000/ox upon which the media shall be all over this.

Gold 1222-12


Technically speaking, if we take a longer-term viewpoint of Gold ($GOLD), then we find the uptrend still intact, although probably a bit long in the tooth. However, that doesn't sway from the fact that a monthly bullish triangle is forming, and the fact prices managed to hold the 20-month moving average last week. Historically, the 20-month has been a very good support level - outside of the late-2008 correction that managed top hold the 40-month moving average. Too, we find the 9-month RSI tends to bottom around the 50-level on these corrections - which is exactly where it is at present. Therefore, we suspect the probabilities favor that this current test of the 20-,month will be succesful - hence a modicum of patience is warranted in holding a long position.

But that having been said, the alternative would be for prices to clear break the 20-month and fall very quickly towards the 20-month support level at $1455/oz. That is and of itself would be no tragedy to the gold bull market, but it it would certainly deplete many trading accounts to be sure. Regardless, we believe gold prices ($GOLD) have one last "blow off" move in them before a larger correction takes place. Its only natural, for gold is cyclical as well.

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