GLD: Market Teetering On A Breakdown

Aug.24.14 | About: SPDR Gold (GLD)


Market still seems very bullish.

Fundamentals have not changed.

Upcoming weeks' expectations.

As the metals continue to meander lower and lower, analysts across the globe seem to be calling for investors to buy this weakness more and more. And, the hedge funds seem to be adding to their bullish positions larger than they have ever done before.

Additionally, more and more articles are coming out about why investors must own gold right now. And, yes, the old reasons are dusted off, repackaged in new frilly wrapping, and put forth before investors as if some epiphany has struck the investing world and gold must be accumulated at this very moment.

And, yes, once again, world events are still the main reason to which most point as to why the metals are about to parabolically rise into the stratosphere. The last I have heard, the Russian/Ukrainian crisis was supposed to cause metals to skyrocket. But, alas, no such launch has been sighted.

I guess the phrase "the more things change, the more they stay the same" is quite apropos in regard to the metals world.

But, there is one change I would like to note. After reading some articles this past week, I have now seen hope turn to desperation in the metals world. A recent GTC report, focused upon by another Seeking Alpha author writing his first metals article, noted that demand for gold, which has been sliding the last several years, is down again in 2014. And, with demand down, prices have followed suit.

But, the author comes to a less than obvious conclusion. Ordinarily, one would surmise that as demand continues to fall, prices will continue to fall. Yet, the author, who has been staunchly bullish for quite some time based upon his comments, claims that "underground" and "unreported" gold demand will make up for the slide in reported demand. While one may "hope" that demand will turn the corner, when analysts make claims that "unreported" demand will now cause gold to rise, we have moved from "hope" to "desperation." Clearly, this is not a bullish sign for the market.

Last week, I noted that I had serious concerns about any upside follow through due to the bearish potential I am seeing in GLD. With the break down below 124.39, any solid upside set up has been taken off the charts, and the market will have to resurrect one all anew in order for me to consider a bullish trade again with targets over the 130 region. And, until such time, the chart is purely bearish to me.

But, the sign that does leave some hope for the bullish move to 130+ is that the decline, thus far, has lacked significant conviction by sellers, as we have not seen any serious high volume selling. To me, this does leave the door open for the rally to 130+ still, but the market is going to have to prove it to me to get my money into the long side for that trade.

At this time, the potential still exists for that high volume selling to make itself known next week. Currently, there is a bearish set up to take GLD back down to the 121 region. As long as GLD stays below the 124.20-125.30 resistance region, I will be looking down towards the low 121 region for its next level of support. But, the kicker is that should it accelerate and break down below the 119 region with high selling volume, we will likely be testing the 114/115 support region quite quickly, which, if broken, will have us on our way to our ideal target between 95-105 by the end of September to finally end this 3+ year correction. If we do not see such a break down very soon, the market may continue to meander and delay the inevitable lower low until early 2015.

Disclosure: The author is long SLV.

The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: I also own intermediate term GLD puts.