Gold Market Update - September 11th, 2011

Gold continues to look as though it is marking out an intermediate top area, with several additional bearish developments having manifested over the past week. One is the powerful breakout in the dollar, which was predicted on the site in the articleThe Great Dollar Shocker just days before it occurred. Could the dollar and gold rise at the same? yes, they could, especially if the dollar’s gain is largely due to the demise of the euro, but a strong dollar does mean that gold will be battling headwinds. The other negative development was the appearance of a strongly bearish “gravestone doji” candlestick on the gold chart last Tuesday, visible on the year-to-date chart below, shortly after it made a new high intraday, on huge volume – the second highest for years. More generally the continuing heavy volume in gold and extreme “skitzo” volatility with big daily moves in both directions is viewed as a sign of an overheated market close to burnout. We can see all this on the year-to-date chart below, and also how gold has hit a trendline target, and is heavily overbought relative to its moving averages, having opened up very large gaps with them, and is still heavily overbought on its MACD indicator, although this has eased somewhat over the past couple of weeks. Earlier it had looked like a small Head-and-Shoulders top was completing in gold, but this now appears to have morphed into a small Double Top and it is clear that the resistance in the $1900 – $1930 area is a key level for gold. Volume is bearish as it remains at a high level with big volume on down days.

You may have seen some articles postulating that gold has entered into a new super steep uptrend. Perhaps it is about to, but our 6-year chart suggests that instead gold has arrived at the upper return line of its broad long-term uptrend channel in a massively overbought state that calls for a significant reaction, or at the very least a lengthy period of consolidation. This chart shows that it could react back to say the $1600 area without even putting a dent in its long-term bullmarket.

The dollar has just startled many bears by staging a dramatic upside breakout that has left them in tatters. We saw this coming days ahead of time having observed the Falling Wedge in the dollar index and its refusal to make new lows and diminution of downside momentum in the face of a barrage of negative press.

We are well aware of all the arguments that “this time it’s different”, and that, therefore, gold and silver are set to explode to the upside. Maybe it is, but that’s not what these charts suggest – they suggest that “the powers that be” are going to pull another rabbit out of the hat, and if they do the “this time it’s different crowd” will be carted off to the graveyards of Wall St by the waggonload, while the cheerleaders retreat quietly into the shadows. clivemaund.com subscribers are prepared for the worst, armed with our Complete Toolbox for Capitalizing on a Gold & Silver Plunge. 

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