Gold: Will it bounce?

“Never try to catch a falling safe” warn the pundits …. “Wait for it to bounce.”

So far we have not seen much bounce. After finding short-term support at $1320 on the 2-hourly chart, gold rallied to $1400 before retreating to test $1360. The long tail at $1360 indicates buying pressure and we should see another test of $1400. Breakout would indicate a rally to $1440*, but bear market rallies are notoriously unreliable and prudent traders are likely to avoid. Reversal below $1360 is likely and would warn of another down-swing.

Spot Gold

* Target calculation: 1400 + ( 1400 – 1360 ) = 1440

On the monthly chart we can see that $1300* is the obvious support level, but the severity of the fall indicates this is a bear market and will take time to recover. Breach of $1300 would signal another decline, with the next major support level at the 2008 high of $1000.

Spot Gold

* Target calculation: 1550 – ( 1800 – 1550 ) = 1300

I am still bullish on gold in the long-term. We face a decade of easy monetary policy from central banks, with competing devaluations as each nation struggles to recover at the expense of the other. I would recommend this WSJ interview with PIMCO CEO Mohamed El-Erian for its realistic long-term outlook.

Dollar Index

There has been no major strengthening of the Dollar, which one would expect if gold fell because of downward revision of the market’s  inflation outlook. Breakout above resistance at 84.00 would signal an advance to 89.00/90.00, but there is still much work to be done.

Dollar Index

Crude Oil

Crude oil prices fell sharply, signaling a primary down-trend. Interestingly, Brent Crude broke its primary support level at $106/barrel on April 8th, 4 days ahead of gold. Nymex WTI followed the next week and will soon be testing support at $84/barrel. Falling crude prices are a healthy long-term sign for the economy, but indicate medium-term weakness with weak demand anticipated in the year ahead.

Brent Crude and Nymex Crude

Commodities

Dow Jones-UBS Commodity Index fell sharply in response to gold and oil. Divergence from the S&P 500 looks even more extreme and stock prices are likely to fall.

Commodities

Slowing growth in China — the major driver of global commodity prices in recent years — is part of the problem, but aggressive action by Japan is also destabilizing global markets.

Commodities

4 Replies to “Gold: Will it bounce?”

  1. CORRECT ME IF I AM WRONG. IF GOLD’S, OR ANY OTHER COMMODITIES PRICE IS FALLING THERE HAS TO BE BUYERS. IF THERE ARE NO BUYERS THEN THE PRICE CANNOT FALL. FOR GOLD TO SELL OFF IN SUCH LARGE QUANTITIES THE ENTIITIES
    BUYING IT MUST BE SUBSTANTIAL. HOW DO YOU FIND OUT WHO IS BUYING IT???

    1. You are correct in that every transaction has a buyer and a seller. But if price is falling, it shows sellers are driving down prices in order to attract sufficient buyers to the market. There are always buyers, but at what price?

  2. “Never try to catch a falling safe” I was taught “Wait for it to burst open”
    Those four lows below 1340 would be near enough to your support of 1300 to take a position on a Wickhoff buy with a stop just below 1300.
    “Better to be roughly right than absolutely precisely wrong.” J.M.Keynes.
    But there could be no confidence in an up trend until the price stays above the top of that last long red candle on the intraday chart about 1420.

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