Update on Gold: May 15, 2013

Our last update [Apr 15] devoted to gold came in the midst of a huge meltdown.  Gold had lost channel support, horizontal support at the psychologically important level of 1500 and was dropping like a rock through 1335.

Never one to shy away from an opportunity to embarrass myself, I gave my best guess:

we [should] get a nice bounce between here [1337] and 1309 and a backtest of one of the broken channel lines — say the white midline around 1410 or even the 1500 level.

GC shed another 14 points to 1321 the very next day, then rebounded strongly to 1404. Another two weeks on, GC nearly reached 1500 before fading once again.

Now, at 1373, it has reached a critical juncture that should result in either a sharp rally to 1560 or a plunge to 1141 in the coming month or so.  If that sounds like an impossibly wide margin of error, there is a way to invest without getting fleeced.

GC has risen via the giant red channel since 1999. The plunge to 1321 took it to the brink of another $200 breakdown.

It bounced at the channel bottom, though, and made a nice comeback… until May 3, that is.  At that point — having retraced a Fibonacci 61.8% of the damage done by the fall from 1590 — it did another about face.  It’s now only $11 from tagging the .786 retracement (1357) of the rise off the 1321 bottom.

The Harmonic Pattern could go either way.  The 1487 high on May 3 came at the .618, so a Gartley, Bat, Butterfly or Crab Pattern could result in a climb back to 1532 – 1756.   Though, that would mean a breakout of the falling channel its been in since last September (in white, above.)

Long positions could be played from the .786 (1357) or .886 (1340) as long as stops are watched very carefully and updated frequently.

The downside case is probably stronger.  If the current plunge continues past 1321, there are only a few key levels of support before things get really nasty:

  • horizontal support at 1302-1309
  • potential Fib targets of 1276 (the 1.272) or 1219 (1.618)
  • Fib support at 1141-1157
  • Fib support at 947

I don’t have a dog in this fight.  But, if I did, I’d be watching very closely to see if GC can catch a bounce north of 1300.  If not, it might easily form an inverted cup and handle and continue to be a great shorting opportunity.

If that should happen, look for the large white channel to influence the drop. The white .618 at 1155 is tantalizingly close to the bottom of the channel in mid-July.

GLTA.

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