We Should Soon Know Gold’s Intentions

14 comments

Although we see nothing scary in gold’s so far 5.5 % fall from early December’s record highs, we’re monitoring the February Comex contract closely for the first hint that the selloff might be about to turn ugly. At the moment, that would require a drop of a little less than $50, to below 1317.40, without any intervening rallies lasting longer than a day.  With the futures trading around 1365 late Sunday night, there is obviously not much margin for comfort, since quick, $50 selloffs are not that unusual with gold currently trading at historical heights.

How likely is a swoon of that magnitude (which would turn our intermediate-term outlook for gold bearish)?  We estimate the odds at around 40 percent right now. However, using our proprietary Hidden Pivot Method to forecast price action over the near term, we expect no worse than 1321.20 before the February futures contract takes a bullish turn.  Granted, that’s just $4 from our danger zone – too close for us to lay odds that the support itself will not be breached. But it would take more than that to signal danger, since, as we mentioned above, the plunge would need to occur without any intervening rallies.

An unpaused plunge breaching the three lows would turn Gold bearish

This rule helps us to sort out stage-managed selloffs designed to scare gold down to bargain levels from the real McCoy – i.e., nasty declines that ae likely to continue for months or longer. If gold’s current correction is going to turn into a long, drawn-out affair, it should signal it in advance by smashing through the three piror lows shown in the chart without any big bounces along the way.  There is one other number to watch: 1313.10, since that it our worst-case target for the near-term, as well as our minimum downside objective if the higher hidden support at 1321.20 is exceeded by more than 50 cents.

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  • Larry January 23, 2011, 2:57 pm

    The only potential hurdle of PM’s continued rise is the tea party. But these new folk’s that were recently elected by American’s, probably will be absorbed in the established “system”. Time will tell. The market hate’s uncertainty. The tea party vow’s to fight another rising of the debt ceiling. Mr. Hoover of the 1930’s, if he were alive today could identify with the tea party. I am safe now with 90% cash. TLT continue’s to fall and with the stock market up big time from March 2009. The stock market’s paltry yield now has to compete with treasuries. Even with Mr. Bernanke’s QE-2, TLT is not going to their plan.

  • Del January 23, 2011, 7:29 am

    I think that if I was #1 man in Chinaland I would like to see gold fall. I would jump all over it. Did Obama and the chief chu make a deal?

  • BlackTooth January 22, 2011, 5:26 pm

    Carlos Slim?

  • Ed January 21, 2011, 8:14 pm

    Which investment firm, or investment advisor or investment newsletter has the BEST TRACK RECORD for providing the highest profits to its clients/subscribers???

    Anyone? Surely, there must be some way to find out which firm has out-performed all the others, over the past 5 to 10 years??? If you know, please email me…

  • mario cavolo January 19, 2011, 5:15 am

    Here in Shanghai, I was up all night ’til 4am my time, expecting gold and the U.S. indexes to finally pop up. Did they? Yeah, almost immediately AFTER the markets closed…gee, how did that happen? How can the little guy possibly play against that kind of blatant manipulation. Meanwhile, it looks as though gold and silver have both shown plenty of support so far against the many calls of impending plunges. According to Gann’s work, we’re at the 60 year cycle turning point in commodities/metals, except Gann didn’t factor in gov’t intervention liquidity pumps, eh?

    Cheers, Mario

  • Bradley January 19, 2011, 3:27 am

    Lemme guess: The Pope, wait, no, Bono, uh, some Chinese guy, or, umm, what about Larry? Darn. Used up all my guesses…

  • Rich January 18, 2011, 6:02 pm

    And it’s not BG either, who already has a quintuple in PAAS…

  • Rich January 18, 2011, 5:20 pm

    AAPL and GS pulling FB from US investors.
    Bot some more silver and BXDD for at least a correction…

    • Rich January 18, 2011, 5:37 pm

      World’s richest man eying silver.
      No its not WEB…

  • Martin Snell January 18, 2011, 2:35 am

    It will be interesting to see how the “Jobs” situation, at Apple plays into all this.

    This puts a degree of uncertainty over Apple, probably capping upside, and since Apple has such a high weighting its also makes a market move higher that much more difficult.

    On of the things that made the raid on gold possible was the bullishness across economies that things are getting better (no need for gold). But Tunisia and Jobs both add back some uncertainty (and more will come from other sectors, Europe for one) to offset this breakout of bullishness.

    Add in the interesting movements in open interest (not collapsing despite the raid), and it gets that much harder to move gold lower. Not that it can’t happen with enough of an effort, but it not as easy.

    • Rich January 18, 2011, 5:35 pm

      Agree MS…

  • gary leibowitz January 17, 2011, 9:45 pm

    Dollar’s direction, economy finding a potential bottom, March low in regards to seasonality, are all good reasons for a hit in Gold. The huge run up without any major sake out is another.

    I would let events dictate a change in ownership but be aware there will be some large moves. The metals have a history of such events.

  • jeff kahn January 17, 2011, 4:20 pm

    A good gold shakeout would be welcome and healthy. I’d like to hear Kudlow crowing about the gold bull being dead and gone. Then it will be time to load up again.

    • ExNav January 18, 2011, 4:01 pm

      Or maybe Jon Nadler appearing on CNBC or Bloomberg spewing his hatred of gold. That would be even better.


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