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I really want to be long gold, but the near-term circumstances with unemployment and the continued perceived deflation threat this might infer still seem to have a grip on the gold market. My goal is to find gold long at the right price, so that once the printing press money that is be shoved into M3 starts to spill over into consumer and asset prices (whenever that is), I want to be part of that.

Take a look at a weekly chart of $GLD (the ETF that mimicks the price of gold). Though the symmetry is not perfect, there is a three drives to a bottom pattern that appears to be stalled out right before the the third drive to a bottom eventually hits. Price momentum has just turned negative and we almost have a DeMark style pivot setting up from the previous two weeks (I think that is a category 1, but the point is, we have a highest high surrounded by two lower highs).

If earnings do stink (or at least for forecast of such stinks) into the second quarter, the deflation trade would certainly favor shorting gold, and at this point the near term signs of such happening sare beginning to arrive). The second drive has a 1.27 extension that would hit a target of 62.86 (roughly equivalent to $628.60 an ounce) that has price support to back it up. If I were a buyer of gold, I would love to see that set up as there is a TON (that's not a measure of weight, just an idiom) of price support there as gold stalled in that area for nearly a year.

I think one should watch closely the events of the next (at least four) weeks to see if this sell-off does indeed occur. We can all hear the printing presses at the Treasury running as the next version of "Bailout Nation" is being proposed in Congress. In that idyllic world of price support, we could indeed buy low for the purposes of selling higher (perhaps MUCH higher later). We know that the physical supply of gold is hard to come by also.

For the GPS view of gold, look at the monthly chart of GLD. with the exception of the 0.707 retracement of the 2005 to 2008 upmove, this thing looks very much like a bullish Gartley pattern. Confluence is right around the 590 area (588.60 to 602.60). Same general pattern expressed from the longer term "satellite" view.

As I said in an earlier blog about being a carpenter with regard to investments, the carpenter in me is waiting to see this development unfold. It might not happen, but if it does, I certainly want to be there when and if this happens.

Does this conflict greatly with the USO (oil trade)? You bet it does. One might think that both could roll lover, and indeed they just might. It just so happens that we are at a critical pivot area on the daily chart of USO. But, until that pattern gets violated, I have to stick with that analysis. Anything else would violate my trading rules.

I think oil may diverge for gold (USO from GLD) because world events may create a situation for which oil supplies could tighten. GLD reacts to interest rates and economic conditions. If the overall economy in the US stinks and interest rates remain low, the gold bears will find their way into this market. I do not think it changes the long term view, but what it does is provide opportunity once the bears LEAVE the market.

More on this as trading develops. This is one way I attempt to be a proactive and not a reactive investor or trader. I either get the set up or I don't. If I don't I wait for the next one.