The “drama” surrounding a possible challenge of gold’s recent high near $1600 played out on Tuesday, in dramatic fashion. Apparently someone did not want the downtrend to end just yet, and not long after the bullish signal was given, the opposing party hit the gold price over the head with a sledgehammer. The decline was good for almost $37 during the day, and in evening trading the low has been pushed down by a couple dollars more. At the moment there are no active bullish patterns of any significance on any timeframe. This is always true at the moment when a market makes a major low, but we don’t think gold is doing that right now. The pullback from the $1923.70 all-time high has come close to 21% more than once, which establishes a clear support zone. But 21% would be a very shallow correction to such a large move up (from $681 to $1923), and we doubt that the support zone will hold. The best-looking pattern we have points to 1456.40, basis the new front contract for August delivery. But the gold price could go a lot lower than that and still correct by a lot less than it did in 2008. The decline from 1797.70 which began on February 29 has been grim and relentless, and there is no sign that trapped bulls will be given one last chance to exit at a respectable price before the low is made. In the event of a successful goal-line defense, however, we promise to retract at least some of the foregoing when 1601.50 prints. (Posted by Doug “harry” McLagan)
