Well, we’ve been saying for some time that Gold was looking pretty suspect. It really started looking weak last October and November when it broke down and failed on a retest of what had been a strong supporting trendline. That trendline was formed off the breakdown lows of 2008 and sustained itself for four years, during which time the metal traded to all-times highs.
The real trouble had set in as of more recent, when Gold broke down through the 1,600 level and then failed to retake that mark for more than a couple short-lived forays. Gravity, unfavorable headlines, focus on decreased demand, the growing sense that the Fed’s QE program was nearing an end-stageůall issues that weighed heavy on the precious metal.
Moreover, there were the comparison with equities and the fact that they were trading to new highs at a time when the metal was struggling mightily. As such, there was a growing sense we might be witnessing the decoupling of a positive relationship that started during the midst of the financial meltdown that beset the world markets back in 2008.
Fair to say that we did get that decoupling (some might call it a drive-by) in the past week, as Gold broke through the critical levels we’d previously laid out. Once it did so, the move was decisive and played out quicklyůconceding more than 250 points (at the height of the sell-off) over the course of a couple sessions…Yeikes………
The velocity of the sell off caught many a peep off guard, to be sure. The only thing that wasn’t surprising was the level Gold broke down to before bouncing and catching some rebound loft. As we pointed out previously, were Gold to slip, the 1450 area would be important, followed by the key fib-level at 1,300ish. This spot on the map is very significant because it represents the 50 percent retracement level of the entire ’08 bull-leg – drawn off the 2008 low to the September 2011 record high.
What I find ironic is the number of peeps who mock such activity as sheer happenstance. Funny how that happens……….A LOT!
Now I’m not a believer in many indicatorsůfrankly just keep it to price action, volume and key levelsůbut that does include Fibs. Why, you might ask? Not because of any type of affinity, I assure you. Fact is they only measure price activityůwhich is a reflection of human emotions and actionsů things that tend to repeat themselves. Nuff said…
Whatever your thoughts on the matter, the real question now is whether this breakdown has played out or has further still to go? To be taken seriously, the gold bulls are gonna have to get this back through the 1,450ish level and ultimately 1,500 – which was a key support level. Not gonna be an easy road back up.
If the map continues to weigh heavy, then we will see 1,300 retested. A fail there and peeps are really gonna spooků.quicklyů Now there’s lots of stopping points downside from 1,300, but the big ones would be 1,260ish and then the key fib level (62 percent retracement of the ’08 bull run leg) around 1,170ish. At that point, the pull of the millennium mark (1,000) is gonna become a huge factor – one the bulls are keen to avoid altogether.
What is sure for now is that Gold is volatile and the activity is likely to be spiritedůand still definitely weighted to downside risk……
We shall See…
~LH