This article is part of a year-end series taking a longer perspective in many market indexes, macro related commodities, currency and bonds. Spread over three weeks, these reviews are intended to help create a high level road map for the the next twelve months and beyond. We continue with Gold (GLD).
That magical yellow rock. It started a movement west, it has been the reason for war. It also has no real use other than its aesthetic appeal. In terms of the markets it is seen as a store of wealth in crisis and a proxy for inflation, but most of this is myth.
Reactions in crisis have been short lived and Gold has been rising dramatically through the last 10 years with little or no inflation. The monthly chart below shows that for 10 years it did nothing but run higher. But the recent action has been corrective, in fact more than corrective, it has been downright bearish. From a technical perspective the recent action looks like a bearish motive wave in the Elliott Wave structure. If this is the case then it would project an end to the wave between $1000 and $800 for Gold modeling the Wave V to be between Wave I and Wave III in length.
Interestingly this range encompasses the 61.8% retracement of the move higher over that 10 year plus period and the consolidation range in 2008. The 800 level would also be the Measured Move target lower if you consider the movement from III to IV a bear flag and now a continuation lower. The combined effect makes a strong case technically for the range, and for movement
RSI and MACD guiding lower. A last ditch review of the daily chart gives the best possibility for hope for Gold longs. The falling trend resistance is very near. A rise of only $60 could break the downtrend and start it higher or even just consolidation through time beyond mid February. All of the Simple Moving Averages are overhead though and falling (a bearish sign) and the RSI is rejecting at the mid line, not going into bullish territory.
There's small hope but for a reversal higher, but Gold needs to move above 1280 and quickly. With all the technicals stacked against it though, the prognosis is for lower prices and this will become even more certain if the price falls below 1200.
Disclosure: The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.
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