Roadmap of the Gold Low

Gold plunged 27% last year and this last happened 32 years ago. In the second quarter alone it plunged 22%, which last happened 93 years ago. The likelihood of these events being repeated is therefore next to none.

The reason for the fall was the hint of tapering of the Fed’s bond purchases hanging over the market leading futures traders to sell gold short to the tune of 500 tonnes. This, combined with the withdrawal of 526 tonnes of gold from the massive GLD fund added over 1,000 tonnes to “supply” in a year.

Yet the story is actually one of two halves. In the first half of the year we saw the vast majority of all that paper and physical selling. The second half saw only 160 tonnes of physical gold sold from GLD and 8 tonnes of short contracts added. This was in the lead up to the real tapering in December. My last post showed you that that paper contract mountain is a disaster waiting to happen.

With the threat of tapering coming ever closer the market actually gained “relative strength”, which simply means the sell off slowed right down even though the threat was getting closer. This is the classic forewarning of a major trend change and it is the reason why the MACD began to turn up. The trend change actually occurred when gold tried to break the June lows in late December but was whipsawed straight back up again to form a perfect six month double bottom. Most, like me, were expecting one more leg down in the gold bear and we were wrong.

Back in 2011 when the gold bull topped gold stocks topped a few months earlier. This time we saw the gold stocks roar to life a few weeks earlier than the gold low. Gold has now reached $1272 having just broken the old top of $1268. But it has strong resistance at $1275 because of a declining trend line from over a year ago that capped the last two rallies in August and October.

I think that after a rest here we will finally see this barrier fall too.

God bless



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