Thursday, March 13, 2014

Gold price chart update (GLD, IAU, /GC)...

It's been awhile since I last created a post on Gold. The weekly chart above shows continuous spot future contract prices on Gold since the bull market began in 1999. I've highlighted the significant corrections inside, we can see this current correction is indeed the largest experienced since the 1999 bull market began.

However I don't see this as a tremendous problem because as you can see each correction has been bigger than it's predecessor the entire way up. And Gold continues to trade above it's midpoint of this long term bull market.

A closer look at this current correction reveals two very similar trading ranges. A double bottom at $1524 resulted in a double top in the $1790 range, the low of this range was breached last year in a couple of days of heavy selling.

We now find ourselves in a similar situation as Gold has come off a double bottom low at $1180 and looks poised to head back up into it's previous swing high at $1434. Will this create another double top situation that becomes the catalyst to send prices further down below $1180? It's hard to tell at this point, the main thing is to pay attention to the important pivots.

Taking out $1434 to the upside would make a high probability of trading at least as high as $1550 which happens to be the midpoint of this current correction and also the breakaway gap left behind when Gold tumbled last year. This is likely to be an important level and it's also possible that the energy created by this trading range could help propel prices much higher on a breakout.

Of course we do have to talk about the other side of the coin. If Gold where to fall below it's double bottom at $1180 that would obviously be very bearish. The very first chart above I've highlighted the multiple highs Gold left behind in 2008 when it created it's inverted head and shoulders pattern before it really took off into the year 2011. That price level is around the $1000 level and it also about marks the midpoint of this entire bull market.

I would estimate that would be the minimum downside target in this scenario. I would estimate the higher probability downside would come in around $840 which I have depicted on this historical chart above. This happens to be the high of the last major bull market in Gold that ended in the year 1980.

It's difficult to predict the exact course of Gold prices will take (or any investment vehicle for that matter). What we can't deny is the relative strength this asset class has experienced year to date. As the chart above shows, Gold (GLD) has a year to date gain of over 13% while the S+P 500 struggles to stay above it's flat line. And it happens to be the best performing asset class of the ones that I follow closely.

However even that performance is not entirely foolproof, a small sample size but in the last 5 years the last time Gold started the year off this well in 2012 it remained relatively subdued the remainder of the year.