Gold spent the last 2.5 years in an undeniably obvious uptrend, supported by the white trend line shown below. This of course changed quickly this year as gold prices broke below the trend line… then the 100-day moving average (red)… then the horizontal support at $1,550 (red line).
Gold sentiment has changed dramatically… more on this below. My technical take is simple: until gold futures retake the horizontal red line at $1550, which I view as the key pivot point, I remain in the bearish camp.
Gold Futures chart, May 8, 2013
What Changed?
Confluence of factors has taken the shine out of gold:
- China’s economy is growing slower than previously anticipated.
- Concerns have grown over the possibility that Cyprus, and other Euro zone members, may need to sell their gold holdings to cover a bailout.
- Margin pressure likely caused investors to throw the baby out with bath water as a trade south induced an exaggerated short term move. Beware – this could happen again.
- Goldman Sachs listed a bearish call on gold just prior to the selloff.
- Gold no longer seems the safe haven play it used to.
- Bulls likely got exhausted by the 16 months of agonizing sideways price consolidation.
- Deflation, not inflation, looks to be possible ahead.
- Investor sentiment has weakened across the board for metals as many investors drink the equity markets Kool-Aid.
Turning back to the technicals, the line in the sand is now the 200-day MA (light blue line). At this juncture, I cannot rule out lower trade dragging prices back under $1400. It’s even feasible we’ll see a 61.8% retracement in the coming weeks, putting futures under $1300/ounce. Clients who agree with this bearish view have lightly bought back ratio spreads in August with the aim of capitalizing on a potential 10% further depreciation.
Ending on an interesting historical note: there have been 13 bear markets in gold since 1975. The average bear market in gold has retraced 14%.
If the current selloff continues, a 14% pullback would put prices under $1300/ounce. Trade accordingly…
As always, I’m here to discuss specifics and give guidance. Give me a call…
To discuss in more detail this chart or any other you can reach me at: mbradbard@rcmam.com or 954-929-9997
Risk Disclaimer: The opinions contained herein are for general information only and are not intended to provide specific investment advice or recommendations and are not tailored to any specific’s investor’s needs or investment goals. You should fully understand the risks associated with trading futures, options and retail off-exchange foreign currency transactions (“Forex”) before making any trades. Trading futures, options, and Forex involves substantial risk of loss and is not suitable for all investors. You should carefully consider whether trading is suitable for you in light of your circumstances, knowledge, and financial resources. You may lose all or more of your initial investment. Opinions, market data, and recommendations are subject to change without notice. Past performance is not necessarily indicative of future results.
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