Gold is getting interesting

GOLD GCJ9/ZGJ9

Buy 828/815/791 and break above 850 Stop below 760 Target 1020

I have been bearish on Gold for most of 2008 and had managed good trades on that. See all that shines is not gold (and associated trade updates chain). However chart pattern is developing in an interesting way. Since bottoming out in Oct 2008 Gold has been on an uptrend. However since March 2008 Gold has not been able to hold above 200d ema. This is forming a nice apex with a potential to break on the upside if Gold can find strength to close above 850 for some time. Bulls are not letting Gold fall too much and bears are not letting it rise. And all that is creating a trapped energy and one side had to give way soon.

The fundamental struggle is about deflation and inflation. If the govt efforts to fight the financial crisis is successful, inflation should be on the cards. This is also evident from most commodities (softs/grains/metals) except energy and oil sector which have silently started turning upwards. Govts would even welcome mild inflation. Afterall they are all borrowing heavily and the only cure for heavy debt is inflation. I am sure the focus would soon return on fighthing inflation but it is like trying to turn a tanker. You can easily oversteer unless the helm is in the hands of an able captain.

Another key issues would dominate would be the strength of USD. If american economy starts recovering, bizzarely it could be negative for USD as people will start taking risk again and USD safe haven will start flowing out again. Also with USD on practically zero interest rate, I would not be surprised if USD would be used as another carry trade currency once the trade returns. Basically a lot of people are scared and parked in govt treasuries at practically zero interest rate. On signs of dawn, these people will start venturing out.

So a bet on Gold upside is bet on sucess of Govts to save the economy and Gold's safe haven status limits the downside anyway.

Safe trade is to wait for break above 850 or 895 and then start entering longs. Adventerous traders can start buying on dips but it would require a closer position management as the trend is still not defined. Break below 791 would signal that uptrend is losing ground and longs should start looking for exit.

I have done one trade of buy at 817 few days back and sell at 835 today. I am looking to keep dipping my toes on the long side in Gold in near future.

Silver/Copper and Grains are looking interesting as well on long side. Cotton is also setting up for long side beautifully. More on that later.