Gold May Be Putting In An Important Bottom

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October 15, 2013 10:51am NYSE:GLD NYSE:NUGT

gold timeBill Downey: The bull camp sees a higher low and the bear camp sees a lower high from the Monday gold trade. Granted gold managed to bounce off the lows posted last week but the source of the rally was in question. Some bulls claim the recovery

was revived safe haven buying interest in the wake of a failure to move closer to a US debt ceiling deal from over the last weekend. Others suggest that the gains Monday were the result of developing weakness in the Dollar, which in turn can lend support to physical commodity markets. While the safe haven or flight to safety argument haven’t played loudly with the gold market over the last two months, the approach of the October 17th default deadline combined with warnings from the head of the IMF and JP Morgan regarding the consequences of an actual default might have rekindled financial market anxiety.

The on-going government shutdown is cutting off the flow of several important data reports. The few releases coming out are, moreover, being met with some skepticism as the on-going stand-off in Washington raises concerns that this could exert a more significant drag on economic activity. Beware of double sided risks, however. Downside tail risks are well known, but equally if a solution is found quickly, investors could be caught in a whirlwind as asset prices re-price both recovery and Fed tapering. It seems markets are pricing a very prolonged delay. With mid-term elections due in November 2014, prolonged delay however seems the politically most dangerous tactic for the Republicans.

Gold Pivot points

R1 and R2 represent 1st and 2nd standard deviations from the pivots for resistance and the S1 and S2 represent 1st and 2nd standard deviations from the pivots for support.

gold pivot points

Gold Short Term

the Monday bounce was right to the Sept low of 1291 and our flush out line. As long as we are below 1291-1303 the short term trend is down. Resistances on Pivots are 1286-1300 but on chart lines that 1291-1295 area is 1st resistance. 1303-1309 would be the 2nd resistance. On a support basis, the GOLD TREND lines are the “SLOPE” in which price support lines have existed since the June lows and are parallel to the original channel line that took gold from 1180 to 1434. I’ve drawn in a line on the action (Lowest gold trend line). I’m not sure if this line is going to hold but I drew it in because the 1266 low so far this week is in “slope” with last week’s low. It’s too early to tell if it’s going to be a VALID line. The WINDOW for a the next short term CYCLE is now open as it’s 72 hours from the 18th in Asia. See more in cycle’s portion. Tuesday’s close was 1272.80 — THIS IS NOW THE 2ND 1272 CLOSE IN AS MANY DAYS as 1272 has the same relation as 1322 did in September. It’s a major number of importance’s. Should we get a debt deal or not, the control boys could technically take us to 1222-1232 on a plunge. And even 1162-1172 on a collapse due to this dual cycle inversion. We obviously don’t know the exact outcome and we can’t eliminate that we’ve made the low because we’ve held 1272. What we do know is that an important low is due this week and we have to get ready for a potential turn up. But we have to be careful where entry is. Depending on how things play out will decide if I wait for the low to be established or if I try and pick a key low. In August, we went long at 1273 and the low was 1271.60. NOTE WE ARE AT THAT EXACT price again here two months later. If we haven’t made the low then one of the purple lines is a high candidate at the bottom of the chart. Resist is 1286-1296 or 1303-1309. With only 48 hours to go in the Debt situation, anything can develop that ignites a big move either way and potentially both ways with a big spike down potential and reversal back up. For now, the trend is still down but CYCLES are lined on short and medium term for a potential inflection point.

gold hourly price chart

The long term look

Not only are cycles primed but the long term chart below shows just how important the 1150-1250 area is in gold. We have completed a full 38% retracement of the long term bull market. Technically that means that gold is still in a strong uptrend and if the fundamentals are as strong as some report, then a major turn in this area has a high degree of turn potential. However, if the control boyz are still in charge, and a deflationary scenario still exists (which it does) then it is still possible for gold to buckle from this critical area and move lower towards 1000-1040 and most likely to one of these long term trend lines. A lot is going to depend on the reaction of the EASTERN world and the physical supplies of gold versus the liquidity squeeze that can still develop.

Chart by Kimball Charting solutions — Goldtrends has added their own trendlines to the chart.

gold long term price chart

As an example of a major deflationary event and in the words of Martin Armstrong on his public blog;

If this is Not DEFLATION – Nothing Is!

Posted by Martin Armstrong
Now in the news there is discussion of a 10% seizure of ALL deposits in ALL of Europe to cover this failed experiment called the Euro. In the Greek newspaper HEMPHΣIA, they reported today on Sunday that the new deal to surface now that Merkel is in power will be the seizure of 10% of ALL deposits to go toward the Sovereign Debt Crisis because the European politicians refused to create a single currency with a single debt. This whole thing is just getting out of hand. The West’s Marxist Socialism is imploding as did Marxist Communism. Enough is enough. We need serious reform before these people create World War III.  (end of post)

The bottom line is that gold is at a major point of price support lines on the long term LOG SCALE charts. No one knows for sure whether this area holds or if a final watershed drop in a loss of support develops from this area. So we need to watch events very closely here. We should get some type of low this week in gold. Let’s see if it’s a big spike down into a low or whether we turn near this 1272 point.

Gold cycles
The cycle window is now open as we’re within 72 hours of October 18th. Today is exactly 180 degrees (1/2 year or 2 medium term cycles) from the April 15th low of 1322. We spent most of September at 1322 and now our move to the next key number of 1272 has both the Friday and Monday close at 1272.60 and 1272.80. Since we have not closed below this number a turn from here is possible. However, the SET UP we warned about last week at the circled areas is akin to the crash of April. We’ve already dropped 93 dollars from the October high (1353 to 1260) so the scenario was already full-filled last week. The question of whether it gets deeper first this week before we bottom cannot be eliminated. We have a dual inversion as in April of 2013 and it has occurred at exactly 180% degrees so we know that it’s a potentially major turn point for gold. That turn can be a blast higher from here but we can’t eliminate further downside like we saw in April to develop during this week. Indeed the control boys can do what they want as they have the debt deal to use as an excuse no matter what happens on the decision. If it’s agreed to extend it —they’ll use that for the excuse and if there is no deal, they’ll use that. They don’t care what the news is –either way they’ll spin it to make it fit the gold move—and whether it’s up or down or down first than reversing to up, the story will be made to fit the gold move. That is why although we report events and news, it is important to always understand that the news can be RETRO FITTED to whatever happens in price. That is why we use technical analysis and charts. Put it this way. We have BEEN SAYING FOR A WHILE NOW THAT OCTOBER WOULD BE ONE OF THE MAJOR TIME POINTS TO WATCH FOR QUITE A LONG WHILE. AND WHAT DO WE GET —BUT A DUAL CYCLE INVERSION RIGHT IN OCTOBER WHERE THE DEBT DEAL COMES DOWN TO THE LAST 48 HOURS AT EXACTLY WHERE THE SHORT TERM CYCLES CULMINATE WITH THE WINDOW OF THE MEDIUM TERM CYCLES EXACTLY TWO MEDIUM TERM POINTS (26 WEEKS OR 180 DEGREES) FROM THE LAST CRASH LOW. WHAT DO YOU THINK THE ODDS OF THAT PRECISION HAPPENING IS IN TIME CYCLES? AND HOW ABOUT 1322? THE EXACT APRIL 15TH LOW? LOOK AT HOW MUCH TIME WE HAVE SPENT THERE RECENTLY FIGHTING TO HOLD IT.

Gold cycles

If we can’t hold the Friday lows, then the 1220-1225 (1222) OR the 1165-1175 area (1172) are the two major support points on a monthly basis we would look at next. The red lines cross that area this week. The next turn date is October 18th (plus or minus 72 hours).

If gold were to crash this week it would offer a cycle potential that completes this portion of the selloff. Thus if we close below 1270 it is possible that we could be heading towards 1220-1225 or 1222-1232 next. In the case of a new yearly low then the 1165-1175 area or 1162-1172 could be an extreme potential and that would be a consideration as a final low.

If we don’t have a major event that develops on the up or downside, then it is possible that the TIME IS NOT YET RIGHT. But the setup in both time and price is a major consideration no matter what ends up happening.

Gold Stocks – HUI
Intermediate Term Trend ~ Bearish
Intermediate term 225.27-229.65

The HUI buckled again and now the next support is the green channel just above 200. We’re just about there, it’s very close. Close enough for horse shoes, hand grenades and Atom bombs, that’s for sure. Unless we get an “EVENT” the 195-205 area should be support this week and odds are good that we’ll make a short term low. However, as long as we are below the moving averages, the trend remains down.

HUI gold stock index price chart

Gold Stocks Short Term (NUGT)
Intermediate Term Trend ~ Bearish
Moving Average Trend ~ 47.36-51.05

It takes a close above 51-53 to put the short term trend neutral.

Here too we see a chart that if the channel line breaks along with gold close below 1270 it leaves the potential for a dramatic drop. The trend here remains bearish. The break could have been much worse than it was. On the other hand, the gold stocks are so washed out and beaten down there’s not much left to wring out. The next support on NUGT is not until around the 25 area. One would think that we would bounce back over the channel line at around 41 and hold. But with that said, until we get back above the moving averages, the trend remains down. Certainly close back above the channel would add some relief. IF this turn point is for real, then NUGT could still suffer significantly before this is all over this week or it can reverse right around here.

NUGT gold stock bull ETF price chart

Gold Weekly Price Chart
Long Term Trend ~ Neutral 1567.38– 1549.93
Medium Term Trend ~ Bearish 1392.99 – 1449.95

The 1220-1225 and the 1270-1275 area is a key support and as you can see it plays with a gold colored channel that has formed as the basis of lower trend support and the green channel line (which is the line that held the June lows).

The upside medium term resistance is the 1401-1460 area where the medium term moving averages are now falling dramatically. If gold can close above these moving averages the medium term bearish trend would be finally neutralized. The August high was the first attempt and it failed. Now the pullback is in play to see where gold will end up supporting.

The medium term trend remains down. If gold is unable to hold the gold channel line that it hit last week, then the green channel line at around 1220-1225 and the June lows of 1178 (plus or minus 30 dollars) becomes 1st support. From a chart perspective there are two main areas of support. The white channel line to the 50% dotted Fib line give us around 980-1070 and the red crash support line and 61% dotted Fib line gives us the 800-880 area. Although these areas seem impossible to be reached by most observers, the history of price movement begs to differ.

Gold can certainly make its low at this current gold downtrend line or at the green uptrend channel line on which the June low took place. It is a matter of whether the deflationary forces accelerate from the current levels. While most see the money printing as inflationary what is mis-understood is that so far the printing has gone to pay off bad debt and not to spur the economy. The latest round holds up the bond and real estate markets. The best thing that could happen to gold would be to get a real economic recovery going and not the ersatz reports we see coming out of government statistics. This week’s key levels to watch are 1272 — and 1222. In essence the gold and green trend lines on the chart. If these channel lines can hold, the potential for gold to have made its low in June remains. However, the odds continue to deteriorate and new lows cannot be eliminated at this point yet. If we fail these lines the odds will substantially increase for the potential of new lows. October and January are the next key turn points. Let’s see if October can hold 1222 or 1272 on a weekly closing basis.

gold weekly price chart

Gold Intermediate Trend ~ Bearish
Moving Average Trend ~ 126.75 -127.57

Building up for one position, so it’s not a backing up the truck purchase.
This should be 1 stock position in your portfolio – NO MORE THAN THAT.
BGT ¼ of a position at 153 on 3/7/13 and ¼ at 145 on 4/14/13 and ¼ at 131 on 4/16 and ¼ at 125 on 6/20.

We were favoring a retest of the channel line in the last update and we got it. The situation is this—-if this line doesn’t hold then the 112 area becomes the next target. As it stands right now, we shouldn’t think it can’t happen. We have a head and shoulder developing on the chart and as long as we’re below the moving averages, price can move lower from here. This is the 4th time we hit this channel line and it won’t take much to bust it slower to 112 and eventually the 105 area could be a candidate if the liquidity problems don’t subside. It takes a move above 128 to neutralize the downtrend. Watch this channel line as it’s another key support point that’s on its 4th major test.

What’s Next?
The trend is down and the scenario of another drop into the next blue cycle into October 18th (plus or minus 72 hours) has basically played out. But the window is just opening and will remain open until Friday/Monday. At this point with the debt situation, anything can develop where the price drop could be steep but it could also produce a very important low point for gold. However the price can also reverse and move up sharply from here as 1272 has now held two days in a row. We just can’t black box it any closer than what we are doing. If we do get a major drop, then I’ll look to go long or buy a gold option. I’ve already discussed how choppy the price pattern has been and in a way gold is difficult to trade the downside, dangerous to have been playing the upside and downright frustrating to be on the sidelines. But a trend at some point is going to allow another good trade like we had in August.

Until we get above 1309 its best to remain extremely cautious about any upside activity and favor lower. We discussed the flush out line giving way and targeting 1263-1273. The low was 1260 and the close 1272. Monday did consolidate in between the high and low of Friday as we discussed last night, but the overall trend is still down in gold.

Bottom Line

The fundamental for gold to rise because of a major debt crisis that is coming globally is going to play out. But a liquidity crisis that we have warned about for quite a while is still in the making and we have always stated that if that’s the case, then gold must first fall before the big move. We’re getting closer and closer to that end, but it still hasn’t played out. It’s possible that October will provide an important low but we’ll have to see the action this week. IF we crash hard then the potential for an important low will be in play. Once the “low” is established and an uptrend develops for real, there will be plenty of upside to profit from. But until then, the major shakeout in gold is still in play. Finally, one person asked if I’ve ever seen a TRIPLE INVERSION where price goes the same way for six weeks in a row. The answer is yes, but for a bull market we want to see a LOW develop at the BLUE cycle due this week and not the red cycle due at the end of the month. I won’t rule that out but it would be much better to make the low on the blue cycle.

This article is brought to you courtesy of Bill Downey from Gold

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