I woke up Friday to charts I wasn’t expecting. Gold had previously looked like it was forming a bottom but the plunge on Thursday night’s US markets invalidated all my research. I now think we have a major head and shoulders pattern in play going back to the June low. It looks like my original assessment that gold will go to $1050 is still on track. Oh well, I made some money in the two small trades so that was better than sitting on the sidelines.
Besides the technical breakdown in the gold chart, I have also seen some other evidence that gold is going lower:
Firstly, this rise in gold in the US currency was not backed up in other currencies.
Next, the gold/dow ratio has broken out from 12.5, reaching 13.08 and now on 12.7. This is a great leading indicator of the future direction of gold, it told us in December 2012 that gold was heading much lower. I wish I had known about it then. Sunshine Profits website suggests it will reach 15 before the end of the bear market for gold.
Next, the euro is toppy, which means the US$ is due for a short rally. This should be enough to drive gold prices below the critical $1210 low.
Finally, the volume on the big up day in gold was less than the smaller down day that followed. This is a sign of weakness. The up day should have had a lot more volume.
…but we’re getting closer to the big washout, which I expect will be sharp, deep and on big volume…a true low.