Joined Oct 26, 2011
153 Blog Posts

Yellow Metal On A Cliff

Gold has been “toppy” for some time. It has been in a sideways to downward correction since the 2011 highs. The first and last stages of a decline are typically the most dramatic. Nevertheless, we have a breakdown and now are making what appears to be a bear flag.
gold cliff

But it’s a double bottom, in the making, you say? Perhaps, but support still has to hold for that to be the case, and resistance still has to give way to break higher. Certainly that can happen, but I am not betting on it.

If we break lower, look out below. It would be a breakdown of a descending triangle that started on April 2011 Without a lot of buyers in the area we could fall to the first level of support. If the buyers don’t step in because the momentum continues, the next level of support for the yellow metal is 1200.

see the warning signs of gold.

Of course, we could break higher, which is why we must watch the 1520 level or so in gold, if that gives way, there is a lot of danger below.

On a side note, the gold story doesn’t really tread water. The gold bulls chant about fiat money, not considering the fact that fiat money has existed for a very long time, and in many cases did not hyper inflate for hundreds, or even thousands of years. The radio stations and TV and such promoting gold has gotten old.

Gold you dig out of the ground so you can bury it in a ground or bank vault and watch it sit there. Then what? Then you hope that hyperinflation happens, even though, you really don’t…. and if it does, all you really do it maintain value. Historically equities do best in hyperinflation anyways priced in the local currency. So this talk about dow/gold returning to 1 has been incredibly premature. Gold serves as a transitory currency, when people lose faith in multiple currencies and have no where else to go they might buy gold. When central banks hedge they may buy gold. When sovereign debt collapses, they might buy gold. But when everyone runs out and bus gold because that’s what some guy on TV said, and everyone rushes out to buy, prices get too far inflated. Like any market, the weak longs must be shook off, and the shorts must first be drawn in, so they can be squeezed out later. In the meantime, the dollar has been strong. Large players have been selling gold and the miners have dramatically underperformed.

Hey, if you want to hold the yellow metal, I have no problem with that, just don’t aggressively buy for a long term hold here, and make sure the position you do have you plan to hold. Gold could go to 1200, or lower in a relatively short amount of time here. That does not mean it will, but the price pressure to the downside does not need to be strong to go significantly lower. On the other hand, to go significantly higher, we do need a lot of volume and buying power.

So the reward favors the downside and risk is to the upside.

So for now, we decline most likely. In the meantime the market has been red hot. It may burn out sometime soon, providing a dip buy opportunity, but until then remain patient and stay away from Gold like it’s radioactive waste.


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