With so much focus on the price of gold and a myriad of conflicting views and analysis, I thought it would be interesting to step back and to consider the metal, not only over a longer term perspective, but also on a different instrument.
The chart here is the monthly one for the GLD – an ETF (exchange traded fund) which is backed by the physical metal.
As we can see gold’s problems really began in August and September 2011 where the extreme volume on the up candle was promptly mirrored by a sharp reversal the following month to create a classic ‘two bar candle reversal’ in this time frame. Overlay one candle on the other, and you have a shooting star! As with all major selling climaxes the distribution phase took some time to develop before gold finally broke below the floor of support in the 150 region in a classic pennant formation. Since then it has been all downhill with three consecutive months of negative price action, all associated with above average volume.
However, what is clear from this chart is that we are not yet at the bottom and the current move higher is merely a ‘short squeeze’, and a precursor to a further move lower in due course. The insiders are selling into the rally here, before moving the market lower once more.
Whilst many analysts are suggesting that the floor of support may be established at the 100 level, what is clear from this chart is that gold could go a lot lower, even as far as the deep platform of support in the 90 ($900 per ounce) price region – as shown by the dotted yellow line.
In summary, gold continues to remain heavily bearish and has not yet reached a major buying (accumulation) climax.
By Anna Coulling