We are seeing a snowballing effect now occurring in gold as even long term holders of the metal are getting washed out. As the metal moves lower, those who are still long are eying trendlines and support levels and are growing increasingly worried that what is left of any profits they might have in gold, since coming in back in 2010, are disappearing. That is creating forced selling further emboldening the bears who are now pressing hard on the market.
I mentioned in yesterday's post that the round numbers such as $1400, $1300 and $1200, do not seem to be holding very well on the way down but are acting much better as resistance levels on the way back up. That is proving to be the case with the $1200 level. Gold has dipped down below there twice in the last two sessions (previous session and current session). Downside momentum is favoring a push towards $1150 at this point unless price can QUICKLY recover $1200 and push away from that level to the upside.
See that previous post for downside targets....
I wanted you to notice on the weekly chart that this particular indicator that I employ has not been this oversold since the very beginning of the bull market in gold all the way back to the year 2001. As of now, I do not yet see any signs that this indicator is leveling out or is losing downside momentum. That translates to the odds favoring further downside before this wave lower is exhausted.
With no signs of inflation in the eyes on most investors, with rising interest rates and with little to no focus on the long term structural problems besetting the US (ballooning deficits and an out-of-control growth in entitlements, not to mention sovereign debts fears out of Europe receding from the front pages, gold is struggling to attract any buying among speculators.
I suspect that when price has fallen far enough however, Far Eastern buying by Central Banks and large long-term oriented interests from that region, will abruptly arise. We will continue to monitor the price charts for evidence of their footprints. For now, specs continue to unload the metal.
Let's watch the HUI however to see if there are any signs that the selling in the mining shares might possibly be coming to an end. Remember, the shares led the metal lower and will probably lead the metal higher. One day does not however make an end to a strong trend.
"When misguided public opinion honors what is despicable and despises what is honorable, punishes virtue and rewards vice, encourages what is harmful and discourages what is useful, applauds falsehood and smothers truth under indifference or insult, a nation turns its back on progress and can be restored only by the terrible lessons of catastrophe." … Frederic Bastiat
Evil talks about tolerance only when it’s weak. When it gains the upper hand, its vanity always requires the destruction of the good and the innocent, because the example of good and innocent lives is an ongoing witness against it. So it always has been. So it always will be. And America has no special immunity to becoming an enemy of its own founding beliefs about human freedom, human dignity, the limited power of the state, and the sovereignty of God. – Archbishop Chaput
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