Toby Connor: I realize that most people that come to this blog are bullish on gold (NYSE:GLD). I myself am definitely bullish long-term. That being said warning signs are starting to build.
Since gold is down this morning there’s a good chance that the mining stocks are going to break the intermediate trend line today. The complete failure to follow through on the move above 600 is also concerning. Usually after an asset has tested an area three times the breakout occurs with strong follow-through.
Gold is also in jeopardy of breaking the intermediate trend line.
A move below $1705 would confirm a failed daily cycle and a left translated intermediate cycle. That would almost certainly lead to a D-wave decline.
Every D wave so far has retraced 50-62% of the preceding C-wave advance. If it turns out that $1923 was the top of the C-wave then we can expect a move back to the $1400 to $1500 level.
Moreover as this would be a left translated intermediate cycle it should move below the prior intermediate low. Taking that into consideration it would be more likely that gold would decline to test the consolidation zone around $1400 before putting in a final D-wave bottom.
I’ve mentioned before that C-wave tops tend to occur slightly above a big round psychological number. We currently have a 2b reversal at $1925.
For those people holding gold (NYSE:GLD) or mining stocks (NYSE:GDX) your position size needs to be small enough that you don’t do serious damage to your account if gold takes out $1705 as that would confirm that a D-wave decline has begun and probably still has another $300 to go before a final bottom.
Related Tickers: SPDR Gold Trust (NYSE:GLD), iShares Silver ETF (NYSE:SLV), ProShares UltraShort Silver ETF (NYSE:ZSL), ProShares Ultra Silver (NYSE:AGQ), Market Vectors Gold Miners ETF (NYSE:GDX), PowerShares DB Gold Double Short ETN (NYSE:DZZ).
Toby Connor is the author of Gold Scents, a financial blog with a special emphasis on the gold secular bull market. Mr. Connor’s analysis skill of the markets is largely self-taught, though he admits to being an avid reader of Richard Russell and Jim Rogers, among several others.