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Yes, that was quite the "rally" we saw this past week in gold. And, yes, it has reinvigorated the few bulls left in the market. But, no, I do not believe this rally has lasting power.

Last week, I noted that GLD can see a rally back up as high as the 142/143 region and still maintain a bearish perspective. Well, that is exactly what we have seen this past week, with GLD potentially topping at the 143.45 region.

But, what we also saw last week was more and more "conspiracy" articles coming out by those uber-bulls who simply believe it is not possible for gold to move in two ways. Yes, believe it or not, gold can and does go down. And, of course, it simply cannot be because their 101st bottom call was not right. No, they are 100% sure that they are right in believing that gold should not go down. This is in the same way that all the "fundamentalists" do not believe that the equity market should have been going up for the last two years. But, instead of dealing with the markets as dictated by sentiment and how the markets are, they only deal with it as they feel it should be. There is no easier way of losing money than maintaining this perspective in any market.

And, again, I will be honest in saying that, while I did not expect GLD to drop this low when I set a target of 142/144 almost two years ago when we were topping, for the last year I have been pointing lower and not higher for GLD. And, for those that have read my articles for two years, you will know that there have been times that I have seen the potential for the next larger rally to begin, but time and again, GLD has not confirmed the more bullish pattern set ups, which stopped us out of those long positions at break even or better.

Also, what we are seeing is that everyone, and their mother, is now providing "analysis" as to what is happening in the metals' markets. I have never seen so many articles coming out on the metals within such a short period of time. Everyone seems to know what is going on based upon how prolific writers have become in the metals. So, I am sure all readers here have their heads spinning when so much information is coming at you.

So, that is why I look for specific patterns in sentiment, rather than "fundamental reasons" as to when gold is signaling its next larger rally. And, no, I have seen no such signals yet. But, I have seen many of the old "fundamental" reasons dusted off again as to why we have a bottom yet again. I am sure you have seen the "cost-of-production" fundamental reason, as well as the "Indian-wedding-season" fundamental reason, and many others. In fact, one article on Seeking Alpha chose to give us 10 reasons why gold is signaling its next larger rally has begun. But, my question to you is what has changed in the last two years with any of these "fundamental reasons." Has it made a difference in the market? Are we going up or have we fallen despite all these "reasons" that gold should be rising?

So, feel free to continually speculate, and even provide comments to my articles with every fundamental reason in the book, as many still do post such comments. This tells me that they are simply not paying attention to price or pattern, and just close their eyes and hope that their "reasons" will eventually prove them right one day. At some point, maybe they will wake up and smell the coffee and realize that fundamentals do not matter. Yes, you heard me say it.

And even when gold does rise, fundamentals still do not matter. In fact, I absolutely love the intellectually dishonest perspective adopted by most that claim that a market is not adhering to fundamentals now, but it will soon. Seriously? If fundamentals are not the engine that drive the train all the time, how can you really claim it is any of the time? So, yes, this should be another wake up call. And this is why I simply feel that any "fundamental" argument for metals should be discounted, even though I know it will spark the ire of many readers here. So be it. Someone has to be honest about this already.

So, now let's turn to the sentiment perspective. And, while I know many of you watch that COT report ever so intently to glean some hope from the bullish side based upon how traders position themselves and gauge their sentiment based upon trade positioning, I am going to suggest extreme caution at this time.

I know many of you are looking at the latest COT report, and saying to yourselves that gold is clearly very bullish right now. But, what you fail to take into account is that the COT was dated for positions as of April 23rd. That was when a minor consolidation completed, which was clearly followed by the rally we saw into the end of the week. In fact, I entered a small speculative long trade in the metals based upon that consolidation, which I exited on Thursday.

So, again, remember that this report does not provide you with insight of the way these traders are positioned after this last rally we saw since the 23rd. My feeling is that their positioning may have well changed or is about to change early this coming week, which will not likely show up until the next report. This is the danger of using the COT report to attempt to trade in the short term. So, for now, I am not taking any larger cues from the current, seemingly bullish, COT report.

For now, I will not even begin to assume we have a new larger bull run in gold until we break through the 149 GLD level on much larger buying volume. Remember, pattern supported by buying volume evidences true commitment and sentiment, and we are not seeing that right now. Even though there is still a possibility that one more spike high can be seen early next week, once the 138 level is taken out to the downside, I think we run the risk of another drop towards the 127 region, with 123.75 as the next larger floor below that.

Disclosure: I am short GLD. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Source: Gold's Nice Bounce Won't Last