It’s A Precarious Time For Gold

April 2nd, 2014
in gold

by Poly, Zentrader

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Follow up:


This past weekend, I remained "on the fence" with regards to which direction gold was headed. Without clear evidence that the weekly (Investor) Cycle had topped, I had discussed how I was warming up to the possibility of this being a late stage 2nd DC, instead of the failed 3rd Daily Cycle scenario I had followed exclusively up to that point.

Whatever the outcome, I maintain the position that it's just too difficult to trade gold on the Long side anymore. I'm glad we're out of positions because this just does not feel or look like an Investor Cycle that is headed higher again. Normally, in an uptrend, sharp drops into DCL's are quickly reversed, as the new Cycle powers higher. But this one has lingered for too long without catching a new Cycle bid and is almost $100 lower.

Specifically, today the equity markets suffered another sharp reversal and bonds soared, both in response to comments made by president Obama and European leaders in response to Russia's actions in Crimea. These flight to safety moves are supposed to be in gold's "wheelhouse", especially so late (Day 34) in a Cycle. A bullish leaning asset would have taken that as a catalyst for a strong rally in a new Cycle. Instead, gold was muted and remained depressed.

Yes, the Cycle count still supports the possibility of a (bullish) Day 34 - 2nd DCL here. But in all honesty, it's not a position one should be taking seriously here because it requires taking a considerable amount of risk. And as I outlined this past weekend, even a DCL right here is no guarantee of strong performance. A 3rd Daily Cycle would need to rally almost $100 just to break new highs and the risk of it falling well short and topping early is very real.


In addition, we have an interesting development within the miners which should have all gold Longs concerned. With a fairly consistent track record of correlating to market tops, the precious metals miners' bullish percent chart has decisively turned lower. Once the charts of precious metals miners start breaking down like this, then it's almost always associated with Investor Cycle tops.


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