Gold nearer term outlook:
Been discussing for quite some time, the large pennant/triangle that has been forming since the May low at $1527. These are seen as "continuation" patterns, suggesting an eventual downside resolution (these patterns often resolve sharply).
Note too the choppy, 3 wave moves in both directions since the May low (triangles break down to a series of 5, 3 wave moves) and the bearish outlook in silver (still appears to need another downleg below the $23 area that has provided support a number of times since last Sept, most recently in Jun, see my scrolling commentary/blog at http://www.fxa.com/solin/comments.htm for the chart), with both adding to this bearish outlook in gold.
Strategy/position:
Though there is little in the way of "net" progress as these triangle patterns form, good profits can often be made by fading the extremes, and will continue to take that approach for now. Note that today, the market rallied to reach a high at $1610, just below the "ideal" resistance at the ceiling of the pattern (currently at $1614). Despite no confirmation of a near term top "pattern-wise" (so far), still looks to be a good risk/reward chance to sell as a close above the ceiling would be a sign to flatten (limited risk). So for now, would short here (currently at $1604), and initially stopping on a close $5 above the ceiling (to allow for a slight break). But with scope for more wide ranging before resolving, will want to switch to a more aggressive, trailing stop on nearby weakness and approach of the bullish trendline from May 30th (cur at $1561/64), as well as the more important base/bull trendline from the May low (currently at $1542/45). A final note, there is some chance of a smaller, bullish triangle forming since the late May 30th low at $1530 (would suggest an eventual upside resolution). Though not currently favored, it is another "risk", and reason to be more aggressive with trailing stops.
Long term outlook:
View since late last year of an extended period of wide consolidating as the market consolidates the large rally from the Oct 2008 low at $681, continues to play out. Note too that despite triangles being a "continuation" pattern suggesting a downside break (see shorter term above), they generally occur right before the final leg of a larger trend (down in this case, in Elliott Wave terms a B or 4). Also, the seasonal chart bottomed early in July (see 3rd chart below), while longer term support lies just below the Dec/May lows near $1525 at the base of the bearish channel since last year (currently at $1495/00) then $1435/60 (38% retracement from the low at $681) just below there. And with all arguing that a downside resolution of the triangle, and break below the $1525 support area may be short-lived spike, and versus the start of a major, new downleg (see "ideal" scenario in red on weekly chart/2nd chart below).
Strategy/position:
Bearish bias that was put in place on May 9th at $1592 remains in place. But as warned above, the magnitude of the declines on a break below the $1525 area is a question. So will be watching closely for signs of a potentially important reversal on such a break lower to switch out.
