Gold Might Finally Be Building a Bottom

by Serge Berger | July 2, 2013 9:23 am

Since I last discussed the state of gold two weeks ago[1], the yellow metal has done just about exactly what i thought it would and reached my downside targets. Now, it’s time to take another step back and evaluate what might be in store next.

On June 19, gold — as measured by the SPDR Gold Shares (GLD[2]) exchange-traded fund — was just dangling at support of the 50% retracement of the rally from the 2008 intermediate-term lows up to the 2011 peak. While from a medium-term time frame, gold appeared to be getting closer to a bottom-building phase than anytime since the downward acceleration began in the spring, I suspected that a break below the then-immediate-term support could usher in the $127.50 level and possibly the $114-$115 area.

After snapping support soon thereafter, GLD reached my $114-$115 target on June 28 before starting a sharp intraday bullish reversal rally.

The $115 area, from a long-term point of view, corresponds to the important 61.8% Fibonacci retracement level of the 2008-11 rally, and thus for now offers a good reference area of support. After having reached this area, gold might finally be in a position to start a bottom-building process.

As it pertains to trading the SPDR Gold Shares now, I suspect the yellow metal will enter a choppy sideways period with wide swings as it tries to establish a better bottoming range.

[3]

Now a look at the daily chart: Right after hitting my $114-$115 target range, GLD bounced strongly last Friday with a bullish outside day, then continued yesterday with follow-through buying. As discussed above, I suspect this bounce could be volatile, but a retest of the $130-$131 area, which was previous support, might be in the cards. This area also could coincide with the 50-day simple moving average (yellow line), and thus offer a confluence resistance area of sorts.

[4]

Ultimately, I suspect any further near-term bounce to be part of a longer bottom-building phase, which will not be for the faint of trading heart.

Serge Berger is the head trader and investment strategist for The Steady Trader[5]. Sign up for his free weekly newsletter here[6].

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