Gold At An Inflection Point

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 |  Includes: AGOL, DGL, DGLD, DGP, DGZ, DZZ, GEUR, GGBP, GLD, GLDE, GLDI, GLL, GYEN, IAU, PHYS, SGOL, TBAR, UBG, UGL, UGLD
by: Avi Gilburt

Summary

The diversity of expert opinions about gold is quite confusing.

Why do we have such a diversity of opinions?

Upcoming week's expectations.

In the past, I have noted that many should not follow the bottom-calls of the so-called "gurus" in the metals arena. They have been terribly wrong because they can only see a market that is going up. No one should place significant reliance upon anyone who can only see one direction for a market. However, there are a number of those that have proven themselves to be relatively reliable sources of analysis, and even within that group, there are significant differences as to whether gold has bottomed.

So, we should probably take a step back and try to understand what would cause such a diversity of opinion from ordinarily objective observers. Is it that sentiment is "mixed-up"? Or, could there be a different explanation based upon sentiment perspectives?

As an aside, let me note that the gold "going forward" rates are now negative for 6 months, as the market now seems to be in backwardation. For most traders, this signals a very risky time to be short gold. It usually means that supply is quite tight, and that any uptick in demand could cause a strong rally in the price of the metal. So, I am going to be very cautious with my near term expectations for more downside, but will maintain those expectations until the pattern is invalidated.

As for the diversity of opinion, it really comes down to one thing: Sentiment has not proven itself to have begun the new uptrend for which everyone so eagerly awaits. Rather, we are in a corrective "mess," which may mask itself at times as a new bullish trend, so there is no clear evidence to substantiate a strong, heavier weighted, longer term bullish position just yet.

During these corrective "messes," the market throws one curve ball after another to investors to reel them in on the bullish side, only to have the rug pulled out yet again. And, the biggest problem, from a structure standpoint, is that the structure of corrective action is quite variable - unlike the relatively well defined bullish structure - which often masks sufficient clarity for traders. It is for this reason that even some of the best analysts have found themselves on the wrong side of this market for at least a week or two within this market over the last three years.

If fact, just on Seeking Alpha alone, we have multiple metals analysts who are certain that the bear market is over, while others are looking for regions below $1,000. So, I really do not see the dire sentiment needed to mark the end to the 3-plus years of corrective action.

Last weekend, I noted:

"it does seem as though the move up was the weakest yet in this corrective rally off the 123 region for the GLD. This usually supports the perspective of this being a corrective rally which is about to come to an end soon. Can it last another week? Maybe. But, it is not something for which I would want to be on the long side in any meaningful way in the short term, as long as we remain below 131.50. . .

In the upcoming week, I think we will likely be developing a topping pattern of some sort. If it is the conclusion of this corrective rally, or just the first leg of 2 movements up in this corrective rally is yet to be determined. But, as long as 131.50 is maintained as resistance in the GLD, I am focusing on an impending large downside move. The support level to watch is 123-123.60 region. A break down below that region, which is seen on very high and strong selling volume means we have begun the bigger decline, with the next target being the 2013 lows, on our way to lower lows in the metals arena."

For those of you that remember, our ideal target region for this rally off the 123 region was the 127.50-131 region. Thus far, the high we hit was 128.25. But, at the same time, the market has not broken our cited support between 123-123.60. In fact, 123.60 was the exact low the market hit this past week.

So, we are still in limbo as we hold over the 123/123.60 support zone, which still allows this market to try to push one more time towards the 129.50-131 region. But, again, trying to trade upside in this set up is very dangerous, as we can break the 123 region even within the current set up. And, once we break that region on strong selling volume, the next stop is the 2013 lows, on our way to lower lows.

And, as for the alternative potential, I have noted it over the past several weeks:

But, if we are to exceed the 131.50 region, then I will potentially be looking for another rally taking us to the 140-143 region before we begin that bigger downside move. But, I see this potential as a much lower probability at this time. Yet, we have to be prepared to know what to do in the event that our primary perspective is ultimately proven to be incorrect.

Disclosure: I am long SLV. 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.

Additional disclosure: I also own intermediate term puts in GLD and SLV