Gold has been trekking slowly higher on low volume as it inches away from support at $1240. Calls for slower global economic growth seem to be putting some firmness in the market as some shorts pull out and move to the sidelines with some bargain hunters moving in as well. Also, the ECB's recent move to provide some monetary stimulus, while knocking the Euro lower, has chased a few shorts out of the gold market in spite of the continued weakness in that key currency.
Notice on the chart that price has managed to move back into the first of three FORMER support zones which were violated to the downside. Gold pushed through the first of these and is knocking on the lower boundary of the middle support zone.
For the bulls to be able to shift the sentiment more towards their liking, they will need to take price back through $1277 for starters but for a more convincing feat, $1280.
For now, the low volume makes this current recovery look more like a dead-cat bounce but any break through $1280 that remains above that key level will have to be respected.
In looking over the ADX, it shows the bears still remain in control but the current leg lower has been halted near $1240. That zone is shaping up to be just as important as $1280 had been. As I have written previously, below this level, a goodly number of hedge fund positions from earlier this year will be underwater.
So far, it seems this is the pattern that we can expect to see in gold - a slow, steady grinding move lower instead of any sharp falls in price. The price drops, then stabilizes, then drops some more, then stabilizes, etc. I think this is mainly a function of the extended move lower for nearly the last three years and the remaining stubborn and persistent bullishness on the part of some of the large hedge funds that moved onto the long side earlier this year. Most of those who have given up on gold have already done so and are in equities. Those that persist in gold are a bit more ideologically persistent and will only exit reluctantly if successive support levels give way.
Keep in mind that a market can find a long term bottom and still not make any sharp moves to the upside. Instead it can continue meandering back and forth, working essentially sideways for quite some time ( quite longer than many traders have patience for ). Some seem to think that once a market bottoms, it is off to the races once again. Nothing could be further from the truth. As a matter of fact, most markets do not as a general rule put in spike reversals without a abrupt shift in fundamentals but instead slowly transition from bear markets or bull markets through a period of consolidation ( sideways trade ) which can last for a fairly long period, before then entering a solid trending move in the other direction. Sometimes the initial trend actually resumes.
When it comes to gold this has been perfectly illustrated when the market topped out in August 2011 just above $1900. It experienced a sharp selloff, then stabilized above $1530 whereupon it moved sideways for nearly 1 1/2 years when it was stuck in a range between $1800 on the top and $1530 on the bottom. Then it dropped out of that range falling over $300 all the way to $1180 whereupon it once again entered another period of sideways trade which it has remained in for nearly a full year now. The top of that range is up near $1400 and the bottom remains near $1180.
There is really no telling how long gold might remain in this "RANGE TWO". It could be for months or it could be for years. No one really knows. If we compare the secondary range to the initial one, this current one has at least six more months to go (wouldn't it be nice if markets were all that well behaved - we would all be so wealthy we could retire the national debt all by ourselves).
Within these broad ranges there exist smaller, tighter ranges. Those tend to show up better on the Daily Chart. Just keep these things in mind whenever someone gets too wildly bullish or too wildly bearish.
Gold is stuck in a very broad range with the shorter term charts showing a bearish pattern for the time being. If gold were to take out the bottom of the former range near $1280, then it would have the potential to move back up towards the top of that range near $1320. Again, as noted above, a break below $1240 however would give the potential for a move all the way back to $1200.
By the way, GLD has not given us any updated numbers for some time now.
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