After gold plunges to five-year lows, are we seeing a turn in the market?
While last week’s trends have continued, with stocks higher and commodities lower, we have seen a dramatic fall in the price of gold. So is gold now a buying opportunity?
In last week’s article we focused on the resumption of the bull trend in the stock markets and the next targets of 11,750 and 11,900/938 have been hit in the DAX as hoped. Emini S&P has edged higher as we target 2118, then June highs at 2127. I ended last week’s article discussing the resumption of the bear trend in WTI Crude and gold. The target of 50.00/49.90 has only been missed by about 14 ticks in the August WTI contract but the big story so far is Sunday night’s plunge in the gold price.
We were watching the low for the three-year bear run at $1132 which I speculated would be the most significant level for 2015 although I suggested jumping on a break below there to target $1090/85. Of course I did not honestly expect this move to happen within a few days or indeed for the whole move to happen before I had even woken up on Monday morning. I didn’t even get a chance to buy gold there!
Gold futures have now fallen from a $1306 peak this year on 22 January to a low on Monday at $1088, a 16.7% loss in almost exactly seven months. The total loss from the peak of $1920 in September 2011 is therefore $832 or 43%.
As you probably know by now if you are a regular follower of my weekly articles for InterTrader.com, or if you are a subscriber to my daily technical analysis reports, I’m big on trend-following and for most of the bear market in gold I have remained negative. It’s a simple strategy! Investors and traders know one of the major keys to success is remembering ‘the trend is your friend’. However you will also know that every now and then I like to try to spot a turn in the market as I did with the stock markets two weeks ago. Here I go again.
According to my charts, gold made a multi-decade low of $253 in September 1999. I think that was around the time Gordon Brown famously made one of several major cock-ups when he sold Britain’s gold reserves. From this point gold soared over the next decade but the three-year bear market has now seen gold lose 50% of the gains. The exact value of this 50% support level for gold futures is $1086.68. As if by magic this level was only missed by about $1 on Sunday night/Monday morning.
One thing I was wrong about last week: $1032 is in fact unlikely to be the most significant level for the second half of 2015. The most significant level for the second half of 2015 was tested while I was asleep yesterday morning, $1086.68. I’m a big fan of Fibonacci as a technical analysis tool but the 50% is not the most reliable of the Fibonacci series. In fact it is not really a Fibonacci number at all but traders do believe the 50% retracement level does deserve some respect.
Gold is certainly oversold now after recent heavy losses and, while I don’t bet against the trend as a rule, I have bought a little gold yesterday afternoon, for a short-term punt. It is entirely possible that gold ends the bear market today but I will be looking for positive signals to indicate we can build a meaningful recovery or even resume the longer-term bull trend. In the meantime my targets for short-term profit-taking on my small longs are at $1122/25 and $1137/1140.
Jason Sen – Technical Analyst & Trader
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