Abigail F. Doolittle | abigail@peaktheories.

com

December 30, 2010

A Peak Point
Gold Caught in a Diamond?
All that glitters is not gold for there are diamonds as well and there seems to be one diamond in particular that has a hold on gold.

It’s called a Diamond Top – if it is, in fact, such a pattern – and it is both relatively uncommon and most often a bearish pattern that signals a
reversal to a downtrend.

These patterns typically form over several months in active markets and are usually born of an uptrend leading to the pattern. The look of the
pattern lends the Diamond its name and it is a combination of first a Broadening Formation and then a narrowing of peaks and troughs or even a
true Triangle pattern in some cases.

According to the rather reliable and notable Thomas Bulkowski, the volume trends down 67% of the time and the breakout is downward 69% of
the time.

It would seem, then, that if the pattern shown above in gold is, in fact, a Diamond Top, the near-term future for gold may not be so golden.

However, before we come to such a conclusion, let’s consider two points. First, the fact that there is no standout reaction low found in the bottom
angle of the diamond while there is a higher high after the top corner of the diamond could lend reason to believe that this may not be a true
Diamond Top. Second, if this pattern is a Diamond, it may be one those that will resolve itself with a very rare upward breakout. In fact, we may
have seen the beginning of such trading action this week as is highlighted by the arrow in both the chart of gold and the gold-backed exchange
traded fund GLD.
 Peak Theories Research LLC 2
A Peak Point

The potential pattern in both gold and GLD clearly has an upward bias that is not demonstrated in the example chart of the pattern to the right and
while I often find patterns break in the direction opposite of the one favored in formation perhaps in this case it gives us reason to think it will
enjoy a sustained upward breakout.

Before we pop the champagne on such a possibility though, we must consider that this week’s action may be a false breakout up and one that
could play out for days or even weeks. In fact, I encourage you to go to Mr. Bulkowski’s web site at http://thepatternsite.com/diamondt.html to
view what such a possibility looks like and to see that it could play out for some time.

As such, I believe this potential Diamond pattern in gold with an upward breakout at this time gives us reason to be cautiously optimistic on the
near- and mid-term trading direction of gold but we must remember to keep the caution part in my mind.

The target of this pattern if it turns out to be a signal of a move up is $1,485 per ounce and very much in the upper reaches of the new trading
range that I’ve talked about in the past with regard to gold or between about $1,400 and $1,500 per ounce. The fulfillment of this target, clearly, is
a reason to celebrate if it comes to be.

On the other hand, the target of this Diamond Top if it turns out to be more the traditional downward-breaking sort is a rather brutal $1,284 per
ounce and, interestingly, slightly above the near-term uptrend that led to this pattern found around $1,270 per ounce. If this turns out to be the
case, you will probably want to enjoy your champagne tomorrow evening for there may be fewer reasons to drink some of the bubbly in the first
quarter of the coming year in relation to gold.

In addition, if this pattern does signal a move down by gold and putting aside the accompanying fundamentals including China’s rate-tightening and
the potential for a modestly stronger dollar, we must consider the implications in relation to silver. In fact, we must consider the implications for
silver regardless of this pattern’s directional signaling since these precious metals are at least loosely correlated in trading action.

In turn, perhaps we should also think of silver’s recent move up in relation to gold and this possible Diamond pattern.

Indeed silver’s own chart boasts a significant breakout up but based on the nature of this breakout (The Dollar, Oil and Soybeans – December 28), it
may give us some small reason to be slightly nervous about it being a false breakout up and thus a reverse reason to be somewhat wary around
gold and this potential Diamond pattern.

All in all though, there’s much cheer to celebrate around gold at the end of this current year and hopefully such merriment carries through to the
New Year even as thoughtful caution is exercised around gold’s swift breakout up until it is clearly cemented into the chart.

But to end on the most positive of notes and hopefully the continued glitter of gold and shine of silver: Happy New Year!

December 30, 2010

Please see important disclosure statements at the end of this document. www.peaktheories.com
 Peak Theories Research LLC 3
A Peak Point

DISCLAIMER

Opinions expressed herein are strictly that of the author and are subject to change without notice and may differ or be
contrary to the opinions or recommendations of any professional associations held by the author including the author’s
employer. The opinions contained herein should not be taken as specific recommendations to be acted upon. Any prices
or quotations contained herein are indicative only and do not constitute an offer to buy or sell any securities at any given
price. No representation or warranty, either expressed or implied, is provided in relation to the accuracy, completeness,
reliability or appropriateness of the information, methodology and any derived price contained within this material. The
securities and related financial instruments described herein may not be eligible for sale in all jurisdictions or to certain
categories of investors. The author may have or have had interests long or short positions in the securities or related
financial instruments referred to herein, and may at any time make purchase and/or sales in them. Neither the author or
any person or entity related to the author nor the author’s professional associations, including the author’s employer,
accept any liability for any loss or damage arising out of the use of all or any part of these materials.

December 30, 2010

Please see important disclosure statements at the end of this document. www.peaktheories.com