Gold and the Bull Trap

In recent days I have seen an increase of gold-positive articles finding their way onto my computer screen. Writers from Motley Fools to Bloomberg are all touting gold’s inevitable rise. I have read these articles and noted all of the same, familiar tone…this time it’s different and gold will continue to rise from here so buy quickly or you will miss out…to the moon I suppose. Yes, I believe gold will one day take out $2000.00 mark but not today, not tomorrow, and not this year. Before the gold bugs start crying and demand an old fashion lynching please here me out.
A Dose of Skepticism
From the start of this current rally I’ve been a little skeptical. Note the daily chart was forming a falling right triangle, a bearish formation, before moving higher. This same formation occurred in October before moving higher and that ultimately reversed after the presidential election. (By the way gold was going to sell off regardless who was elected. The price action on November 9th clear demonstrates the huge selling/shorting was well planned. If someone thinks it was a knee-jerk reactions to the election outcome they’re naive. No one sells short billions of dollars on a whim when gold was moving so violently higher in aftermarket trading.) To believe the current price action is a meaningful move higher I would have preferred to see a longer consolidation in the $1120 – $1140 area. Ideally, a move to the mid-$1170s, reversing, and retesting the lows around $1125 before moving higher would have been a much stronger signal the low was in. At this point I’m convinced we will have a reversal but it’s more likely the Shorts will be done covering and proverbial rug will be pulled from underneath the few remaining gold bulls and price will fall through $1120. A break of $1120 will signal the short-term support is broken and the Shorts will pile in and drive the price to the $1080 area before taking a break and consolidating.

This post was published at GoldSeek on Monday, 16 January 2017.