Is this the bottom for gold?
Posted by Danny on June 25, 2013
For our most recent coverage on gold see Prospects for gold
It is by now clear that scenario 1 is out of the way, so we can revisit scenario 2 and 3, which pointed to possible downside targets of $1080 and $1260.
Since gold is now sitting just above $1260, that scenario deserves more attention until proven otherwise.
Let’s take a look what gold has done since peaking just above $1900 in September 2011 (click for larger images):
Here we see how gold dropped $410 in four months, and…
… then it went sideways for thirteen months, only to drop another $400 in four months.
It is now holding just above $1260, after touching a low of $1268 a few days ago. Based on the trend lines we can also see this level is likely to offer support.
We can see where this $1260 level comes from in this longer term weekly chart (click for larger image):
There was a double top at $1240 and $1260 in 2009-2010, just before gold took off towards $1900.
We can also see that this eyes more like a completed correction now, with prices having fallen back to a major trendline. If gold is still in an ongoing long term bull market, then this is potentially a very good point for the next leg upwards to start. The other candidate is around $1100 on the somewhat lower trendline, but I am not sure that is going to happen as so many analysts seem to be waiting for a drop to $1100.
At this point I would do some buying near $1260, or buy some gold stocks, and keep them with a stop-loss just under $1240. That’s risking 2% with the potential of gaining quite a bit more. Even if gold is in a long term bear market it is quite likely that we would see a 10% rebound off this support level.