Gold (by Gary Tanashian)

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The public now hates the fact that it bought into this gold scam"Damn, if only I could have held out and not gotten so emotional, I would have remained calm and let our dear leaders find a solution instead of buying into this bubble" says the public.

Real gold players know that the above is a necessary ingredient to preparing the ancient relic for the next leg in its bull market.  But a key question remains as to gold's technical status.  As we have noted all along (since the upside panic last summer) in NFTRH and on occasion here on the blog, gold has needed continued correction as measured in Euros, Loonies and to a lesser degree, Aussie Dollars.


 

But what of its nominal price?  Well, if you care about gold's price from a daily, weekly or even monthly perspective, then you are set up for disappointment.  If you know the reasons that gold is rising as a long term barometer to the global financial events currently in play, you simply do not worry about the short term.

While gold can qualify for support at or above 1550 – a level that is reinforced by favorable public opinion and CoT data – going strictly by the technicals, the recommendation is to ignore the cheerleaders and realize that gold can easily decline to 1450, 1300 and even lower.  If you understand the desperation currently in play by powerful entities world wide, you also understand the ease with which this relatively small and relatively controllable market can be manipulated.

You also understand the intensifying value proposition of gold now a few years on from the previous intense buying opportunity.  Back on the chart, we note that the most recent drop in RSI to near 30 has the potential to end the correction.  But if the system remains in a continuing deflation 'event', it would be worthwhile to note the crash below RSI 30 that attended the last great deflationary event in 2008.  So do not rule out a decline to 1150 or even 1000.

Now, the herd (and not just the gold herd, mind you) will of course be sucking its thumb if 'disaster support' – AKA support from the 2008 destruction for most stock and asset markets – is approached.  I do not expect this to come about on this cycle, but it is on radar none the less. 

The chart leans bearish in my view.  Gold has certainly qualified for a healthy correction, but when thinking about the fury and hysteria of the Euro panic that drove gold too high, too fast into an upward channel buster, it helps to keep symmetry in mind; as in the market often punishes one mania (in this case, bullish) with an equal and opposite mania.  So, while I am going to manage 1450 and the channel bottom for now, I am also going to use plain old market experience to at least note the potential for continued punishment and lower levels to come about.

This chart introduces another indicator, the Stochastic RSI, which is an indicator based on an indicator.  The idea being that it is more sensitive to over bought and over sold levels.  While it has declined toward over sold (bottom yellow dot), a smoothing 5 day moving (top yellow dot) average implies it can become more over sold short term.

I realize that gold is rising strongly in pre-market this morning.  But as long as it remains under the top (yellow dotted) channel line and roughly the 1700 area, it is technically vulnerable.  So many stock markets – including my favored HUI Gold Bugs index – are at inflection points.  It would probably pay to watch what happens in gold for signs of what may be coming for the rest of the asset spectrum with regard to whether or not the deflation event is finishing up as a mini event or has more kick left in it for potential maxi destruction.

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