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Hey Gold! Where You Going With That Gun In Your Hand?!

|Includes: SPDR Gold Trust ETF (GLD), SLV

Below is the chart of the SPDR Gold Trust ETF (AMEX:GLD) which clearly shows two important things.

  1. The true breakout point that gold needs to close over this week to confirm the 2 bar reversal pattern from last week - arrow.
  2. The fact that GLD opened above the high for last week putting it in a very high probability position to best that resistance level.

A number of markets are continuing to push up against major decision points. The setup you see on the weekly gold chart above holds a very high probability of the breakout in gold occuring this week. The fundamentals are as strong as they ever were and gold's price action is indicative of a market responding very positively to those fundamentals.

Looking at the GLD statistics this week, since GLD opened above last week's close this is already an outside bar which puts a floor for the week on GLD at $161.13 to a 90% probability - there's a 9.9% chance GLD will break both the previous week's high and low in the same week. Given how strong the open was on 1/22 there was an 84.6% chance that GLD would exceed the high from January 3rd of $164.14. It hit a high of $164.22. Gold never did reach the high of $1696.15 that printed on the COMEX that day, topping out at $1695.85 so that peak is still intact for a couple of reasons: 1) no daily close above the level to create a preliminary weekly breakout signal and 2) no confirmatory signal in from the other instruments highly correlated to gold.

With silver (AMEX:SLV) on an 8 day long rally, a feat silver has only managed twice in the past 20 months and both times the rally failed, there are strong odds there will be a pullback in silver in the next day or two and it will take gold with it.

GLD's close on 1/22 put it in a 65% position to make another attempt on 1/23 to take out $164.22 and if that is achieved a 60% chance to hit $164.50. A daily close above $164.22 will bring in fresh momentum-based buying which has a very good chance of taking GLD up to $166 this week as gold pushes through $1700 during COMEX hours.

Once these short-term signals confirm themselves they will have spillover effects into longer time frames. The futures are free this week as contract expiration is not until next Wednesday which always seems to create downward pressure for the metals, especially during a month where they rallied significantly. Is this the spectre of Blythe Masters and the JPMorgan (NYSE:JPM) commodities trading desk? Who knows? And, frankly, after all this time, who cares? What matters is what happens between now and the end of the month, a month in which gold, so far, has exhibited very low volatility overall.

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

Additional disclosure: I own physical gold, silver and a few dairy goats