When I wrote this, gold was smack in the middle of the range. It really was a 50/50 chance that gold would go up or down… at least from the technical chartist’s perspective.
Today we have a clearer picture of gold. It’s still mostly in “no man’s land” because it hasn’t yet fallen below $1,500. But it’s looking increasingly likely that the next big move will be down.
Here’s what I see…
Since mid-March, gold slid lower from $1,700 to $1,550. During this time we witnessed a trend line break.
What does that mean? Quite simply, the price has broken the line that marks its uptrend or downtrend. In the chart above, the green line is the uptrend line. It connects low points in gold’s long-term, upward trend. Usually, this trend line acts as support… That means, when gold falls to the trend line it subsequently bounces higher.
However, on May 8, gold did NOT bounce higher off the trend line… it “broke” through it. And it didn’t just break the trend line for a brief moment; it traded lower for several days. This is a very bearish signal.
Now, when a stock or commodity breaks a long-term trend line like this, it almost always retests it. You can see this happening when gold rallied higher, back up to the trend line, at the beginning of June.
This retest is very important to watch. If the retest succeeds, gold hops back over the trend line and resumes its long-term upward movement. But if the retest fails, gold prices won’t be able to get back over the trend line. When this happens, you get confirmation that the uptrend is over… and that leaves you with falling prices.
It’s a bit too early to call, but it appears the retest is failing. This means we’re one step closer to sub-$1,000 gold.
If you haven’t done so already read the Survive & Prosper issue on “We are NOT gold bugs; Are You?”.