Is Gold About To Crash?

Includes: GLD
by: Avi Gilburt


News events have not moved the metals.

What is the dollar saying?

Expectation for upcoming week.

On Wednesday, before the market opened, the metals topped right in the region I noted last weekend. And, after the market dropped, I received an email from Seeking Alpha notifying me about a "breaking news" event, which was entitled "Precious metals decline; writers search for an excuse." And, I cannot tell you how hard I laughed.

In that email, the usual "causation" suspects were noted: The Fed, Ukraine, interest rates, and China. But, the primary message was that nothing made sense in "causing" this decline we had this past week. Dare anyone even consider that none of these were the "cause" of this decline? Of course not. There must be a "reason" why the metals dropped. Right?

Let's take this one step further regarding how this drop was unusual. If you were watching carefully, not only did the metals drop this past week, but the dollar dropped along with it. Talk about having market participants scratching their heads. Not only was there no good "reason" for the drop, but the metals dropped with the dollar. None of this is supposed to happen. Right?

Even Zero-Hedge had to admit that the markets have "ignored" the Ukrainian escalation of violence this past week. Remember, it was only a few short weeks ago, when we were at the highs in metals, that some were calling for moves of an additional 20% higher due to the Ukrainian events.

So, is there anything that can explain all of this action, which seems to be "ignoring" all the reasons most look towards which move metals? Of course, my answer is "sentiment." I have been beating this drum for all of those that would listen. While these news events can serve as a catalyst to move a market, unless sentiment is set up to move the markets in a certain direction, no news event will be able to move the market in the opposite direction of the sentiment setup. When you understand that markets move based upon the sentiment of the overall market participants, then you would not have been scratching your head this past week, and would have likely made some nice money as a trader.

I also have news for those that follow the dollar. While most seem to be seeing a technical pattern for the dollar crashing, and others feel that the fundamentals dictate that the dollar is set up to crash, I am seeing a potential pattern, which will take the dollar in the opposite direction. In fact, if you look at the attached chart, you will see the fractal analysis I have noted on the chart. This is a chart we have been following for quite some time and it has provided us with some relatively accurate predictions.

As you can see from the attached chart of the DXY, we have now finally hit my bottoming target for the dollar. And, assuming we can maintain over the 78.50 region, my expectation is we can see a strong rally in the DXY back to the 83 region. And, for those that believe in the "correlations" between the dollar and the metals, you are probably now getting on the phone with your broker to unload your precious metals.

Last weekend, I noted that "as long as GLD remains below the 126-127.50 resistance region, then the market has provided us with a "set up," which could see a drop of at least $3-4 within a single day... Right now, the pattern set up is such that if the GLD is unable to break through the 126-127.50 resistance region in strong fashion, it is set up to revisit the 113-115 region in quick fashion."

And, for the gold bulls, I am sorry to say that nothing has changed. Rather, the pattern has been reinforced with this past week's action. So, as long as we remain below the 127 level in the upcoming week, we have a setup in place to take us down to the 115 region next in a very strong, crash-like drop. So, I will now be moving the stops on many of my short positions (which were entered in the 131.50-133 region) to the 127 region in GLD so that I am able to bank some nice profit even if the market moves against these positions in the short term. Remember, it is one thing to have an expectation of where the market is going to go. It is another thing to be foolish, and rely upon hope when the market moves against your position and not bank good profit on a trade.

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. I own intermediate term puts in GLD and SLV.