Since my last update on gold one month ago — and more specifically, on the levels of the SPDR Gold Shares (GLD) charts — the shiny metal has done just what I suspected it would. After another dead-cat bounce to still lower highs, gold is right back where it was on May 21, and thus once again frightening the living daylights out of gold bugs the world over.
Allow me to start laying out my latest thoughts on gold through the eyes of a multiyear chart. Gold’s most recent “correction” (not counting the current one) took place in 2008, when along with the selloff in most things, the metal slipped lower from March until October before resuming its ground-stomping bull run. The bottom of this 35% correction thus serves as the lower end of the latest swing higher.
Measuring the rally from the 2008 lows up to the 2011 peak, the SPDR Gold Shares ETF has now retraced close to 50%, which from this time-frame indicates that it is getting closer to a bottom-building phase than anytime since the downward acceleration began this spring.
To be clear, I am not looking to step in front of any proverbial train here; I want to see better bottom-building before trying at the long side of this puppy.
The first and immediate support line here for GLD is at $131, which if broken could quickly lead to $127.50 and possibly the $114/$115 area. The $115 area would correspond to the important 61.8% Fibonacci retracement level on the long-term chart above, and thus better support still.
Two more important notes on gold:
First, gold as an asset does not like economic growth, which is why oftentimes the loudest bears on equities are also bullish on gold. Second, given today’s important FOMC statement, depending on the reaction in the fixed income and equity markets, there is significant potential for gold to make a sizable move in either direction.
So, while both the long- and short-term charts favor further downside in gold, a shift in the market’s paradigm does have the potential to finally put gold into a better bottom-building phase.