Back on January 8th we wrote a piece where we talked about our view that gold was going to “break wide open sometime in the next 6 months (5 left)” so with Gold having traded under $1600 for the first time in 6 months on Friday it is worth revisiting our outlook.
Now it is worth noting that our view on Gold is based more on technicals and our view of its place in the world than it is by any fundamental assumptions or assessments of its value. We believe that Gold is just another market to be traded. Certainly one that generates more emotive comment than most markets but one that nonetheless is still prone to the same vicissitudes that other traded markets encounter.
Back in January we showed a monthly chart of gold which was just breaking down and said,
On the monthly charts I am a Gold bear and I strongly believe that even if it is not this month Gold is going to head lower in the months ahead. Its a slow melt rather than a meltdown but a melt nonetheless.
Now that we are nearing the end of February and now that we have seen a decisive break lower of this very long term uptrend how does the outlook for Gold pan out.
Clearly this is month 5 in its decline. Clearly as we will show a little clearer later the down trend is cyclically strong within what has been a strong structural Gold market since October of 2008. But equally clearly the last 5 months of decline have taken gold down and through the uptrend that has been in place since 2008.
Gold has broken our monthly fast moving average and Friday’s low of around $1597 was only $7 dollars above our slow moving average. In our trading methodology when a trend reverses and breaks the fast moving average positions are reduced. A break of the slow moving average leads to positions being entirely cut awaiting a trend reversal.
These levels, moving averages, also generally offer decent support in a trend so gold is very close to buying coming in or a reversal.
Looking more closely at the weekly chart the multi-month downtrend is more obvious and the source of Friday night’s support is equally apparent.
But you can see in both of the above timeframes that the bias is for a continuation eventually of lower prices within this overall downtrend. Indeed the weekly trend has turned negative 4 weeks ago.
Equally however it would be reasonable to expect that on a daily basis the support of the bottom of the down trend channel, the slow moving average on the monthly charts and the acceleration of Gold down and through the bottom of the Bollinger Band might see some buyers emerge.
Indeed Business Insider reported over the weekend that Citibank analyst Tom Fitzpatrick put a note out to clients saying Gold has fallen to an ideal pivot point for a rally higher with,
“…a minimum (price) target of $2,055-$2,060.”
Perhaps he is right – only time will tell.
Our view remains that gold is in a meltdown phase.
We expect it to get back to the levels that launched the last upleg around $1520/25 before we would want to be longer term buyers, but we may remain bearish depending on what transpires in the intervening period.
On the way down, though we’ll be trading shorter term within the parameters of the 5 month down trend which are $1591-1688 today.
Have a great day.
Please remember these are not recommendations for you to trade these are my views and I have my risk management tools and risk parameters that you do not have access to. Thus, this blog is for information only and does not constitute advice. Neither Greg McKenna nor www.globalfx.com.au has taken your personal circumstances, objectives or financial situation into account. Because of this you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation or needs.