Gold bled throughout the entire month of December, and now, many folks are screaming to buy it again. What some might be forgetting, though, is that gold has been moving lower since October 2012 … and at least from a momentum perspective, it doesn’t yet feel entirely ready to rebound.
That said, I’m not calling for a major continued deterioration in the price of gold. I just think that in the near- to medium-term, investors might get an opportunity to buy it cheaper.
These six straight weekly losses in the price of gold also have caused a divergence between gold and stocks. Since the 2009 lows in equities, gold and stocks have had a nicely positive correlation most of the time. This positive correlation hasn’t been natural, but artificial, as the world’s central banks have caused risk-on and risk-off periods where investors mostly have distinguished little between risk assets. (And yes, in this case, gold is considered a “risk asset.”)
However, there are two recent periods of note where this positive correlation has temporarily broken; the August-October 2011 market turmoil, and the current period since November 2012. See the chart below, with the SPDR Gold Trust (NYSE:GLD) exchange-traded fund used for purposes of analysis:
From a longer-term perspective on the weekly chart, it is difficult to imagine that gold is about to fall into the abyss (assuming central banks don’t immediately reverse their dovish course). Furthermore, I see gold recoupling the uptrend with stocks at some point in the first or second quarter of 2013, and thus get back in sync with the positive correlation.
Also note that, on the longer-term chart, gold has been acting more like it is consolidating rather than topping, and thus the triangle-shaped price action of 2012 and the last quarter of 2011 might lead to a retest of the September 2011 highs near $1,925, or $185 on the GLD.
It’s the closer-up charts where I see more weakness.
Measured from the May 2012 lows up to the October highs, the SPDR Gold Trust has now retraced almost exactly 61.8%, which in the world of Fibonacci numbers is an important level to watch. However, I have come to learn that gold does not trade so well technically since 2009, so I would not be surprised to see an overshoot lower past this level near $158.25.
Supportive of this theory are the momentum oscillators, such as Stochastics and the Relative Strength Index, neither of which are in oversold conditions that would merit a better bottom.
Given the above analysis, I see GLD sliding to near $156 before better price stabilization might be considered. Those looking to go long gold should have some time left before needing to jump in.
Patience shall be rewarded.