The weight of Gold’s weakness should be apparent to anyone pondering the chart below, since even a novice can see how relentlessly gravity has been tugging on the metal’s price. But what are we “experts” supposed to think? From a Hidden Pivot perspective, one more sharp tug could damage bullion’s prospects for at least the next few weeks. Specifically, if the June contract were to slip beneath the labeled 860.00 low without an intervening rally from here of at least two days’ duration, it would create a bearish impulse leg of daily-chart degree. That implies that any bounce that follows the support’s breach would likely be doomed (unless it were sufficiently powerful to push above the peaks made in mid-April and late March at, respectively, 956.20 and 960.30). More likely is that the decline would continue to at least 830.70, a Hidden Pivot support, or to 793.90 if any lower. At the latter price, Gold would have corrected about 24 percent from its mid-March highs. Although that would be pretty nasty for anyone planning to ride out the storm, in the bigger scheme of things it would amount to no more than a routine correction within a long-term bull market.

Technical analysis aside, we see no reason to think the correction will be much worse than that. Anyone who would assert otherwise must explain why he thinks the dollar is about to embark on a prolonged rally, for nothing less than that is implied by a prediction that gold prices are headed significantly lower. We’ve heard a few arguments in favor of the dollar, but none that is even remotely convincing. Granted, the dollar is oversold, and “everyone” has been betting against it. But it is in the nature of bear markets to generate extremely oversold readings for longer than most traders would care to imagine. Another factor weighing on the dollar is that Europe and the U.S. appear to be headed in opposite directions on interest rates. While the Fed is all but certain to ease by at least 25 basis points today, there is reportedly a good chance that the European Central Bank will tighten when it meets on May 5.  Under the circumstances, the dollar is all but ordained to lose ground versus the euro, and probably against gold as well, in the days ahead. Looking beyond the next five days, does anyone seriously believe the trend will change? There has been talk that this might be the last Fed rate cut for a while, but we’d bet against it. As long as the federal funds rate is above zero and the U.S. economy is perceived to be slipping, administered rates are likely to keep coming down.

Not that easing has worked. In fact, it has had no apparent effect on banks’ willingness to lend to each other, a prerequisite to any upturn in consumer borrowing. We view such an upturn as being, not merely a long way off but impossible to imagine as long as real estate prices are dropping. There is no evidence that this deflationary catalyst is about to reverse; to the contrary, it appears to be accelerating.  Just yesterday, CNN and other news outlets reported that home prices for February registered a record drop for the 12-month period ending in February, with most of the nation’s largest markets reporting double-digit declines.  Under the circumstances, it’s safe to say that the Fed has no option but to continue easing. That can only further weaken the dollar, putting a floor beneath gold that probably lies not far below current levels.

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Hidden Pivot Seminar May 21-22

Because seats for the recent Hidden Pivot seminar were nearly sold out, I’ll be offering the course again in May – on May 21-22, from 6 p.m. to 9 p.m. Mountain Time.  Click here, and then on the “Upcoming” tab to register;  or here if you would like more information as well as a detailed description of the Hidden Pivot Method and a free Hidden Pivot calculator (our latest model, perfect for beginners).