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Has Gold as a currency/panic play, run its course?

I stated in a Twitter post a few weeks ago that I though Gold had finally made a short term top. For the record, I also said the same thing 2 months prior at lower levels, so I am not crowing that I called the top, but I did find some technical analysis clues that lead me to make that 2nd call.

Here is my first call, on Sep 2nd 2010 “Now that stocks are moving, no reason to own Gold, sell on drop below $122, target $106."

Sep GLD short

The GLD did briefly break below $122 and then ripped higher as we can see, above (click to enlarge).

Central banks' buying, the general public buying in, funds buying, everyone loading up as we essentially as a country were just printing paper and commodities were running…

Then, as the market was also running and setting new highs for the year and some people were starting to go back to work, suddenly, to me, gold started looking toppy again.

Dec 20th 2010: My take on Gold for the next 18 months, Target $1000

Here is that chart (click to enlarge). Keep in mind this is a 3 day chart, looking out longer term:

Dec GLD short

There are many things that drive stocks, bonds, currencies and commodities. Supply, demand, psychology, fear, greed, media manipulation, corporate manipulation as well as national and regional manipulation.

But when one, two or 3 legs of a “chair” that supports the movement of one of these trading vehicles disappears or because of time, information and the acceptance that these reasons are “true”… Then the less those supports have merit or “strength”.

Case in point, “Gold will skyrocket to $2000 an ounce because our dollar is falling apart”… Well, that was a real threat till other world currencies also started getting hit. It can still be said those world currencies are getting out of hand aside from the dollar too… But really, why else should people be buying/hoarding gold? The US deficit of $14 Trillion? Could the US default?

Gold has had a run since 2005 of $400 to $1400 without a real parabolic move. Sure it ripped higher and based, then ripped higher and based… Made a beautiful reverse head and shoulders from 2008 to the latter part of 2009 then ripped higher again, but…

LT GLD short

I see the 1st signs of a distribution pattern here at the top, click to enlarge, (well, the current one) where there isn’t any more spiking up to new highs. Who is left to keep buying? What about all those who are leveraged in this from lower levels that keep holding waiting for higher highs? What if “everyone” runs for the door at the same time?

I’m not suggesting panic by any means, but realistically, a 38% Fib retracement of this 5 year move comes back to the $1050 or so area on Gold itself and roughly the $103 area on the GLD.

Seems farfetched now, but it wouldn’t surprise me at all as the move from 2005 to the peak in early 2008 had a 50% Fib retracement in less than 9 months…

My analysis tells me this: I am not taking part in the Gold moves either way, other than once in a while I may buy puts on the GLD but with only a small portion of my assets and only for the fun/art and science of timing the moves…

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Additional disclosure: I wrote this article for futuresource.com and I did not receive any compensation.

Source: Has Gold Run Its Course?