Kaye:  “Gold has drifted a bit higher since we last spoke, Eric, but it has now bumped up against the top of its trading channel.  The trading band that is of interest to traders is right around the $1,345 level....

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“If we were to see a convincing break of $1,345, it would trigger a large short squeeze.  So a break above that key level would set off a number of short-stops that have accumulated around that area just below $1,350.  This short squeeze, should it develop, could easily open the way to higher levels -- the low $1,400s, and possibly as high as $1,445.

I think from the standpoint of people who care nothing about anything other than technical analysis, the critical levels that need to be breached before they will turn and say, ‘We are back to the races and gold has resumed its bullish secular trend,’ we’ve really got to get through the $1,440 - $1,450 level before you get a chorus of respected technical analysts joining that party.”

Eric King:  “Who do you think is protecting the $1,445 area?  Is that hedge fund shorts or commercial shorts?”

Kaye:  “That’s a really good question, Eric.  I’m cautious about believing anything in the COT (Commitment Of Traders) Report, particularly since the language that started to accompany those reports told people not to take it seriously -- that it’s only for information purposes and they can’t be sued if they are lying to you. 

But if we do choose to take those reports seriously, the gold shorts currently protecting that level appear to be short-term traders, largely hedge funds.  These are hedge funds that jump on a particular train heading in a certain direction.  Of course when things reverse themselves, that can cause a major short squeeze in the case of a market that has large shorts positioned in it such as gold.

I think there is a reasonable chance that we do take out these buy-stops and break the $1,400+ level on gold.  But people have to keep in mind that it is a coin flip here because we know the cartel would like to see lower gold prices and possibly much lower.  So this is a pretty tricky time for traders.

For longer-term investors, it is becoming increasingly apparent that they need to hold their gold in a safe place outside the banking system.  For investors willing to do that over the next year to two years, I think they are going to be very happy.  But if people want to trade gold, I think it’s a very precarious moment in time.”

King World News note:  Tom Fitzpatrick sent KWN the following gold chart which shows the trading channel in gold that William Kaye was discussing (see chart below).  Fitzpatrick also included some comments.

Fitzpatrick:  Gold posted a bearish key day at the trend highs while daily momentum has begun to turn lower from stretched levels.

Support comes in around $1,285 - $1,300, the converging 200-day moving average and channel base (see above). 

We remain of the bias that higher gold prices are likely going forward.  However, a short-term correction in this up move is perfectly normal.”

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