Clive Maund: Gold Market Update

The current standoff in gold is approaching resolution and evidence is starting to pile up in favor of an upside breakout. We have been cautious on the PM sector for months starting with the September top which we shorted, resulting in massive profits in a matter of days, especially in silver, but there is always the danger of taking caution too far and getting caught on the wrong side of the trade. Charts patterns allow for all possibilities and there remains the danger of a downside resolution, as we still have a Descending Triangle in gold and a potential Head-and-Shoulders top in silver, and the downside potential of these patterns would of course become reality in the event that the deflationary scenario prevails, which could be triggered by, say, a major bank failing in Europe, leading to an out-of-control run on the banks. That said, however, there is no denying that both the COTs and public opinion, particularly for the dollar and silver, are strongly bullish for the PM sector, and past experience shows that it usually a costly mistake to trade contrary to their indications.

It's time to make the call - to come down off the fence and take decisive, resolute action, and the great thing is that you (and I) can do this without fear of getting egg on our faces - why? - because of the highly favorable risk/reward ratio that now exists for the sector, as we will now demonstrate on the 2-year chart for gold.

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