Various media outlets listed many ‘convincing’ reasons to buy gold (a few examples of recent media blunders are listed in the article), but the gold market did exactly the opposite. Why did gold drop and where will it find support?
On June 8, Barron’s reported that the gold speculators are back and the Financial Times observed that gold bulls feel no need to hedge their gold position.
On June 11, MarketWatch ran an article titled: “Why mining stocks point to gains for gold prices”.
On June 14, gold prices (and gold ETFs) fell 45 points or 3.5%.
Gold ran into a triple barrier.
That triple barrier is made up of:
- Technical resistance
- A seasonal weak spot
- Bullish sentiment extremes
The July 13 Profit Radar Report pointed out that: “Gold is making progress towards our up side target. We are considering a small short position.”
What was the up side target and how was it determined?
The up side target was 1,350, determined by combining technical analysis, seasonality and sentiment.
The June 1 Profit Radar Report published this price projection (chart below, yellow lines) and stated:
“On Friday gold slipped into our support zone at 1,255 – 1,230. Gold sentiment is quite bearish, so the immediate down side may be limited. The yellow projection shows one possible route to get to 1,350+/-.”
In terms of time, the projection was off by a couple of weeks, but gold reversed rather violently when it neared the outlined cluster of technical resistance levels around 1,350. Since prices did not completely touch the resistance cluster, there is still a chance of another bounce to ‘complete unfinished business.’
The SPDR Gold Shares ETF (NYSEArca: GLD) chart below offers an updated look at the gold market, with some interesting technical nuggets (chart published on July 15 by iSPYETF.com).
- GLD found support right at the June 19 gap up open. I’m showing the GLD chart, because this gap is not visible on the futures chart. Support held and gold (and GLD) should bounce as long as this support holds.
- GLD is trading heavy, as trading volume during the selloff was elevated. This cautions of further weakness eventually. A close below 124.30 would likely trigger another step down.
Based on the actions of commerical traders, which includes actual gold miners and other insiders, gold may see more selling.
Here is what commercial traders are doing and why this may be concerning:
Simon Maierhofer is the publisher of the Profit Radar Report. The Profit Radar Report presents complex market analysis (S&P 500, Dow Jones, gold, silver, euro and bonds) in an easy format. Technical analysis, sentiment indicators, seasonal patterns and common sense are all wrapped up into two or more easy-to-read weekly updates. All Profit Radar Report recommendations resulted in a 59.51% net gain in 2013.
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