Gold bugs have done a lot of crying, rending of clothing, and gnashing of teeth in recent weeks as gold has swooned. It’s worse this morning as gold's price sinks even a little below the levels on these charts. At the same time there’s been lots of gloating and cheering among mainstream media types who hold the yellow metal in low regard.
Gold bugs have been complaining about nefarious manipulation by the forces of evil, central banks, particularly the Fed, and the big bullion banks like JPM. I’m not a gold bug, but I respect that it has a role to play, and it’s pretty clear that the central banks hold it in high regard. The Fed holds $400 billion of the stuff.
Do I think there’s been manipulation? Yeah, but so what? Everything is manipulated. Stocks are an open target of central bank manipulation, so it should not surprise anyone that those same central banks and their henchmen might be doing things to help gold possibly break a support level here and there. A falling price of gold sends signals that “all is well, there’s nothing to see here.” For the central banks it’s all about maintaining the con. And gold is something that can help or hurt in that regard.
Gold Major Bottom Setup May 2013 – Click to enlarge
The issue of whether gold is manipulated notwithstanding, the charts tell us that this is a perfect setup for a major bottom. Gold’s price has come down to both an 8 year trendline and the 48 month moving average. Often at bottoms there’s a little overshoot. So I’d allow a little leeway on that score. A big break would end the discussion, however. A drop below 1320 would suggest that the secular bull ended at the 2011 top, and that those loudly cheering on this decline are correct that gold has lost its luster.
Looking at momentum, the 12 month rate of change is at the level where it bottomed not only at the 2008 low, but also the granddaddy low of them all in 2001. Obviously it could go lower, and that would mean the bears are in charge. But an upturn from this level would have bullish implications.
Finally the data from the CFTC’s Commitment of Traders reports that Commercials have reduced their hedges to the level reached at the 2008 bottom. Likewise both small and large specs have reduced their long positions to the levels reached at the 2008 bottom. Those are pretty good indications that this could be the bottom.
Gold Weekly May 2013 – Click to enlarge
The weekly chart is ugly, but it too suggests that this could be a major bottom. The price has reached downtrending support. The 13 week rate of change is near the level where gold’s price bottomed in 2008. In addition to the commercials and large and small specs, this chart shows that gold producers have reduced their short positions to the level reached at the 2008 bottom, and managed money has reduced its long position to the level of the 2008 bottom. All of these things point to a potential bottom here.
One way or the other, gold has reached a major inflection point. In the next few weeks it should either re-confirm the bear market by decisively breaking these trend support levels, with various technical indicators breaking the extremes reached at the 2008 lows. Or they will reverse, suggesting that the bear market has bottomed.
It’s really a tossup, but I expect at least a strong rebound from around these levels. Whether that turns into a new cyclical bull phase should be signaled by whether gold gets back above 1500 for more than just a peekaboo.
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Source: Wall Street Examiner
