Did Gold Just Bottom?

Includes: AGOL, GLD, IAU, PHYS
by: Avi Gilburt

As everyone has been waiting with bated breath to see gold bottom, every drop has been viewed by many as THE bottom. But, I have been looking for lower levels for months now. In fact, weeks ago when many thought the bottom was in, I was still looking for levels in the 150-154 region. And, thus far, they have been attained, but have we seen the final bottom in gold?

Well, for those of you who have read my analysis before, you know that my primary perspective is market sentiment. So, allow me to present the arguments based upon that fundamental perspective.

We have seen many analysts and investment houses lower their target for the yellow metal over the last month or two quite dramatically. In fact, Goldman has now reduced its target for gold to 1200. But, one should carefully review Goldman's accuracy for their public calls in the metals, as it is quite horrendous. So, if one wants to be a "muppet," then one should maintain a large short position at this time.

Furthermore, if we review the most current COT report on the metals, we will note that the speculative traders have, in fact, increased their short positions on the metals. However, the banks - as in Goldman's contemporaries - have not only decreased their short positions, but they have increased their long positions. So, clearly, I am not advising that one act as a "muppet" in the metals markets at this time, as that would be quite dangerous to your financial well-being.

In fact, on Thursday afternoon, hours before we hit that 27.94 reactionary bottom in silver futures, I noted in my Trading Room that I was cashing in my short term SLV puts at the close on Thursday, and I sent out a Wave Alert to all my subscribers on ElliottWaveTrader.net that were shoring silver with me (for a short term trade) since the last top, and said:

I want to warn those that are attempting to short silver here, as we approach the target zone, the possibility exists that once we hit it we can see a VERY strong reversal . . . remember, there is VERY bearish sentiment on the metals, and the next low will likely provide us with a positive divergence on the daily chart. The top of that target zone is just under 28, so please be cautious with your shorts. This is now becoming a dangerous game to short silver.

Of course, my warnings applied to gold as well, but since silver provides us with more volatility, we prefer to trade silver over gold.

As I also presented last week, we are seeing all-time low sentiment numbers from entities such as sentimenttrader.com and the DSI survey. But, what I have noticed this past week is that more and more analysts are coming onto CNBC and piling into the "Dennis Gartman" boat, which is already so heavy with metals' shorts, that it is already taking on water. And, in truth, Dennis has been one of the best contrarian indicators for the metals over the last several years.

Now, from a sentiment standpoint, when gold is so heavily weighted to the short side, those that are knowledgeable market participants know that it is only a matter of time when you see a massive short covering squeeze that catapults the metal higher. The question is if we are ripe for such a squeeze now.

Last week I said that we can see GLD move up as high as the 158-160 region before we see another drop to a potential new low, with an ideal target around 149, just below the prior 151 region bottom. While we did see GLD move up to the 157 region, just shy of our target, we have still not broken down below the 151 region, which I sited in the past would be strong support. Even though I had expected last week that we can see one more low in GLD down to the 149 region, I am not suggesting to hold out for that target at this time. When silver made further lows this past week, while gold did not, it did show relative strength in gold, which would not have me short of the metals at this time.

So, for now, the immediate region of resistance I see for GLD is the 157.50-158.25 region. It is in within this region we would see an a=c target at 157.50, as well as seeing strong confluence at the 158.20 region, wherein the .618 retrace of the prior larger rally resides, along with the 1.00 extension down within this decline. Assuming we can see a strong move through that region in GLD, then we can look towards the 161 region next, which represents the .764 extension down, as well as the .500 retracement of the prior larger rally.

And, if GLD can move through that region, then the final region which will be contested is the 170-174 region before we can see a massive break out taking us to new highs. But, I am going to be open to a one more potential near-term short trade based upon the manner in which GLD moves up to the 157.70-158.25 region, but that will likely be a game time decision.

But, I must warn you, the inability of GLD to powerfully move through the 161 region in the near term would make me consider shorting it after the next rally, and the targets can still be as low as the mid to low 140 region before a true bottom is seen.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in GLD over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.