Intermediate Low Not In Yet For Gold


Gold (NYSE:GLD) suffered its biggest loss today (15th of June) for more than a year. It looks like the recent dollar strength has finally caught up with the yellow metal. There was basically two options that Gold had I felt before the FOMC meeting announced yesterday. Basically, I thought we would either revisit and breach the lows we hit in May ( Just over $1280 an ounce) or we would rally on the news meaning that in all probability the intermediate low was in.

Technically We Remain In An Uptrend

Today’s move would have caught a lot of gold bugs by surprise especially considering how silver finished yesterday. The move below $1,280 today in gold means we are still in an intermediate decline. Considering though the higher lows pattern of gold, I don’t see the $1,240 level being breached. Around this level, gold completed its last intermediate cycle low and as the chart illustrates above, the previous intermediate low in July of last year was a higher low compared to the previous intermediate low.

Suffice to say, there is no reason to believe the higher lows will not continue. Why? Well I maintain the higher high gold printed in April of this year is significant as it confirmed the bullish trend. Therefore gold bugs need to be patient this week coming and wait for a swing to take place before adding or scaling into a long position.

In hindsight though, we just didn’t get our V shape snap back rally out of those May lows. V shape rallies as we can see in the first chart are indicative of an intermediate cycle starting. The down-day today though is going to set the stage for a powerful snap-back rally – something that again was amiss on the 16th of May.

Gold failed to deliver a V shaped rally out of its May Lows

No V Shaped Rally In Gold Out Of May Lows

Sentiment Needs To Drop More

The updated long term sentiment reading in gold is indicating that we may still have some more downside next week. We use sentiment as a contrary indicator especially when it gets down to ultra pessimistic levels. This means we could have a trip to the $1,240 range and this is what gold bugs need to expect next week.

Sentiment in gold to drop next week to print intermediate low

Long term sentiment in gold may have a bit to go

Source : Sentimentrader.com

Therefore although days like today (15th) can make a gold bug feel like throwing in the towel, we actually need big down-days in order to reset sentiment and get rid of the loose hands. If one is already long (large position), I would advise to turn off the machine and ignore the price over the next week or so. If one is long with a small position, one could use this intermediate decline as an opportunity to double down. Emotions can run havoc in intermediate declines. However, these 3 points should demonstrate that a buying opportunity may be right around the corner.

  • We are in the timing band for an intermediate low. The last ICL took place last December so our ICL should take place any day now
  • Sentiment (although having increased since mid-May) is closing down on levels which are indicative of intermediate lows
  • The weekly technicals such as the slow stochastics are heavily oversold.

Gold’s Weekly Stochastics Are Oversold

The wrong decision would be to bail from this market next week especially if you see other markets like the stock market rising aggressively. One needs to buy into weakness and sell into strength. I expect a weak bounce at the start f the week maybe followed by further losses. The key here is to wait for a swing. Let the market do what it needs to do to flush out the weak hands. Good luck.

 

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