So it's looking my interpretation from 3 weeks ago was correct: we merely had a short bull cycle in gold (~3 months) within a major 2 years (and counting) downtrend ... and that bull cycle is over. I suspected last week's action was a bull trap, and it looks like my suspicions were well-founded. Like clockwork, the 144-day MA was touched immediately on Monday, but it was all downhill from there. 
Because I'm looking for a sign that the major post-August-2011 downtrend is over, at this point I much prefer weekly closing charts to daily candlesticks. Baked into the weekly closing cake is some clue about what the biggest players are willing to hold going into a weekend. Perhaps as a consequence, with the exception of the post-QE-3 rally last autumn (also ~3 months), the 20-30 week MA ribbon (green, below) has been stout resistance. Note that gold finished the week right below it:
So, it seems to me the downtrend will continue ... although more or less sideways action here is also possible (surely fundamentals must matter somewhat??). Perhaps gold will remain stagnant till the spring, making a double bottom on a monthly closing basis where the blue trend line crosses the 38% Fib line? Of course, even if that scenario holds true, there could still be a lot of intra-month volatility.
But the bearish case (e.g. gold testing $1000) will be somehwat strengthened if the $GOLD to $S&P500 ratio on this long term chart (going back to early 1990's) falls below the support line just under 0.75.
To further support the bearish case, if my long-held conviction is correct, that the "10-year yields measured in silver" chart is extremely important, then I think we're looking at new lows for silver in the months ahead, which would entail a new low for gold too (see yellow ovals), probably, as the top of the flanging wedge is hit (green, dotted):
At any rate, I'm just a fascinated spectator here. As the saying goes, opinions are like a$$holes, and in the gold market, you seem also to have a lot of a$$holes with opinions (not me of course). Which a$$hole will be proven right?? Stay tuned! In the meantime, stackers should keep their day jobs, and fiat-backers should watch out for normalcy bias.
GM
2 comments:
Great post as always GM Jenkins. You keep me diffident about stepping in on either side of the market right now.
GM, with the price action from the current week, your warning about normalcy bias was outstandingly accurate.
Sad to see gold hammered like this, unless of course it is darkest before dawn. Kid Dynamite has pointed out that Gold does not do so well in a deflationary environment. I wonder what excuse they will use to switch the money taps on this time.
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