Gold – Hounds Have Done Opened!

HOUSTON – As we say here in the south, “the hounds have done opened!”  Naturally that means that the dogs have picked up the scent of the (fox, raccoon, wild boar or whatever the hunt is about) and have let out their signature yelp or howl.  In this case the “hunt” is the gold market and the hounds are sending their magical music back to our camp just as sweetly as when it is a boar hunt up in East Texas or Louisiana.   When the dogs have “opened” it means it is “game on” and the hunting action is “fixin’ to get  interesting.” 

Gold, Weekly.  Note the apparent change in trend as evidenced by the MACD. 

With central banks buying physical gold at a 500-tonne per year pace; large well-known and high profile fund managers such as Pimco’s Bill Gross, John Paulson and George Soros adding to gold and metals ETF positions; likely new monetary easing to come from the U.S., the E.U., China and probably other central banks; all heaped on deadly labor and political trouble in the mines of South Africa, we have what amounts to a multi-pronged pitchfork catalyst for the long-awaited consolidation breakout for the yellow metal.

December 2012 COMEX gold futures, daily.  Shows the tight consolidation breakout. 

After a nearly year-long consolidation in a flag or pennant formation we can point to an attempted breakout of that consolidation (first chart).  Interestingly, the follow through surge higher once gold eclipsed the $1,620s to $1,640s – the zone which has capped all gold rallies since June – does indeed have a convincing “look” to it on short term tick charts, suggesting that it has been fueled by both new long positioning – in size - and by speculator short covering.

 
We will get to see the beginning stages of that trader positioning in this week’s CFTC commitments of traders report (COT) due late Friday for trader positions as of the close on Tuesday, when the breakout was just getting underway.  We suspect that report will worthy of careful study this weekend. 

We expect to comment more about that in our subscriber charts at the usual time this weekend.  By then it would not surprise us if the hounds have already gone to the bugling stage, with the game actually in sight of the leaders of the pack.