Gold futures have been beaten flat for the past three years. Since they made a high at $1923 an ounce in September, 2011, the price has fallen by about $800, sowing doubt and despair in the hearts of gold bugs everywhere.
But now it might be turning.
Friday (Nov. 7) the December futures contract (GCZ4) made the kind of bounce that restores faith to the wavering: it ran up $50 on heavy volume in the space of a day, and turned what had been another depressingly common down week into a reversal.
So did we witness the bottom at $1130, the low it made before it turned around?
The bottom? Probably not yet.
Set against that three-year decline (and the manipulative power of major institutions), Friday’s bounce looks like a little blip in a heavily over-sold market. And it probably was.
We think the bottom is close, but we believe Gold will drop a little further before the market turns around for real. We think that bottom will be somewhere between $1020 and $1090.
Here is our reasoning.
Until September, 2011 Gold was in a bull market that had run for 10 years, from the low around $255 in 2001, to the high at $1923 in 2011 (see chart below).
On the way up in that bull market, $1035 was a significant point, the high made in 2008 before the market pulled back. And $1045 was also significant, the low in 2010 where an incipient decline stopped and turned the market around so the bull market could continue.
In the retracement of that bull market, the 50% Fibonacci level falls at $1090.
Now that the market has turned down, we think those levels – the resistance that became support on the way up and the Fibonacci retracement – will be important again. At the very least, any further decline will pause there, and, perhaps, start another leg up.
Short-term outlook
For the short term, a move above $1192.50 this week is likely to trigger the shorts’ stops and push Gold up to $1220 – 18.50 or higher – to $1230-28.
Remaining below that level could lead Gold futures back down to Friday’s low of $1130, where the buyers may begin to show up. We expect the futures are searching for a major bottom. We shouldn’t short too aggressively below the 1150 level.
Gold futures to Nov. 7, 2014. Continuous contract, monthly bars
Visit Naturus.com to see the outlook for the coming week. .
