GOLDReport

May 3, 2007

Observations

Due to time constraints on my part, this week's metal report will only deal with gold.

Last week I correctly stated that short-term trend in both gold and silver futures contract were in downtrends. Nothing has changed in the week that has gone by other than prices dropped, but not as much as some may think.

June Gold is within 70-cents and July Silver within 5 cents of where I wrote week's report. Both have probed further down, but have not been able to mount much in the way of a lasting price slide.

June Gold

In last week's report, I stated; "The current chart pattern is NOT bullish on the daily charts. My guess is that too many people were long and that a washout was necessary to put the market back in balance." As it turned out, that comment was right on the money.

As prices probed lower, reaching a low of 670 on May 2nd, the market became oversold. The oversold condition meant that a Bear Market Rally was likely. In fact the rally today was generated in large part by the market's oversold condition. This is not a rally I would buy into.

Technically speaking, the past most recent "swing high" took place on April 30th at 684.9. A sale at 685.7, the 18-Day Moving Average of Closes, is not a good sale since if a pattern of higher highs has already begun. In essence, today's high of 685.2 began this new pattern and a sale against the 18-Day Moving Average of Closes, currently 685.7 makes no sense.

I've labeled the most recent highs with a Red Arrow that points down. Until today's rally ends, we won't label it. The most recent lows I've labeled with a Yellow Arrow that points up.

What's the definition of a Down Trend? It is when the chart pattern is one of Lower Highs and Lower Lows. Look at the arrows on the above chart. We were in a Downtrend until today's high took out the previous high of 684.9. It would now take a close over the 18-Day Moving Average of Closes, at 685.8 to get bullish. Until that take place, this market is now simply Neutral.

Conclusion and Recommendation

As stated above, unless prices close over 685.8, we have a Neutral Trend. As of this writing the market has corrected the oversold condition. My bias will only change from that of being Neutral to Bullish if prices close over the 18-Day Moving Average of Closes,

Longer-term I remain Bullish until prices get back under 636.7. However, the short term patterns are not offering any immediate condition that I can get bullish from. To get Bullish I need one simple event. Prices must close over the 18-Day Moving Average of Closes. At this moment, even if that occurred, the dollar risk in getting long would be back to the most recent low of 670m which presents much to much risk for me. Therefore, I remain on the sidelines waiting for a better chart pattern to trade from, keeping my bullish bias in tact.

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