GLD: Market Bottom May Now Be Delayed

Aug.31.14 | About: SPDR Gold (GLD)

Summary

World events, such as the Russian/Ukrainian conflict, have not moved metals as many expected they would have.

Market will still likely see lower levels in the near term.

Upcoming week's expectations.

If you listen closely, you can hear the whispers amongst the gold bulls. If you listen even more closely, you may even make out the fears of those that believe world events will cause gold to rally, especially since gold has clearly not moved according to the script many in the media have expected based upon recent world events. Yes, there is much confusion based upon gold's recent lack of response to world events.

There have been way too many analysts who pin their rally hat hopes upon the Ukrainian/Russian conflict causing a parabolic rise in gold. Time and again, they have noted how the escalation of the conflict can only force gold to rise to new heights. However, I am not sure gold has read those articles.

This past week, we all read the news of Russian troops and tanks actually entering Ukraine. Some even labeled it a full out invasion. Yes, this is a scary situation, indeed. It harkens back to the days of Hitler's invasion of Poland, almost exactly 75 years ago to the day.

Yet, gold ended the week just about the same place where it began, even though there were no reports that the Russian troops or tanks left Ukrainian borders.

In fact, gold is down over 5% from the point that many believed the Ukrainian conflict would cause a parabolic 20%+ rise in the metals, and silver is down over 10% during that same period. Yet, these same analysts claim that it will "eventually" cause that parabolic rise in the metals. They clearly don't let the facts get in the way of their opinions.

So, again, I am going to request that you all begin to think honestly about this situation. Let's not place our brains in neutral when we read such analysis, and accept it as absolute truth, just because it has been placed on the web. In fact, several weeks ago, I noted:

What I have become so saddened by over the last 10 years of my life is the public's belief that if something is in print, then it is correct, or even worth reading. The amount of printed material that lacks intellectual honesty has only grown with the advent of the internet, and so has the public's gullibility. I have met very few in my life who actually maintain a critical prism through which they siphon information before they accept it for truth. So, I implore each of you to judge everything you read with a critical eye, and simply not accept what you are fed as "truth."

So, let's run this news story through a critical prism to test it for "truth."

When one takes a flame to a piece of paper, will that paper catch fire 100% of the time? Well, a reasonable person would answer "yes," and can easily understand that the flame was the direct cause of the paper catching fire. Now, if the Russian/Ukrainian conflict was such a flame, would we not have caught fire in gold quite some time ago? But, that has clearly not been the case, even though we now have reports of a potential invasion.

So, can we really believe that this conflict should ever be viewed as the proximate cause of any metals rally, should one ensue? If we are being intellectually honest, the answer should be "no." If something is not going to be the proximate cause of a reaction all the time, and if a supposed reaction should occur at some point, after many failed prior attempts, it should be clear to those logically inclined that the perceived cause was not really the true cause at all.

So, I continue to question at what point will analysts stop beating this Russian/Ukrainian horse, as it is clearly dead already. I wonder how long it will take them to recognize this "cause" will go the way of the dodo bird in the same way that the China "cause," the India "cause," the QE "cause," etc. have all gone.

Does this mean I don't believe that GLD will rally? No, that is not what it means. But, I have to be brutally honest with you and note that the lack of downside follow through this past week has left me questioning if I should take a short term neutral stance as it relates to the GLD pattern I am seeing. While my longer term perspective remains that lower lows will be seen before the gold bull market is resurrected, the immediate action in the market has me a bit perplexed.

While the action this past week has caused me to still view GLD as potentially immediately bearish as long as it now remains below 126, silver has a very immediate bearish picture based upon its current structure. So, until silver is able to break its immediate bearish posture, and GLD can break through its 126 level, I am unable to view an immediate move to the 130-133 region in GLD as my primary perspective.

Now, another fact to which many point is the action in the US Dollar. Back in April of 2014, I had been preparing those in my Trading Room at Elliottwavetrader.net for a strong reversal in the USD. My expectation was for a bottom to be found within the 79 region, with an upside target for the DXY in the 84 region, all based upon fractal and Elliott Wave analysis. So, those that believe that upward movement in the dollar places downside pressure on the metals have more time and room with which to expect the dollar to rally and the metals to potentially fall. As an aside, I do not subscribe to inter-market analysis, as it has too often led many people astray. So, take this perspective how you will, as it is not a strong support to me for metals to drop. But, clearly, I am not going to expect a strong rally beyond the GLD133 region in the face of the dollar still needing to head up to the 84 region.

So, based upon all the factors I am seeing, I am still somewhat immediately bearish of the metals, especially with the pattern I am seeing in silver at this time. But, until we see a strong break below the 119 region in the GLD, the door remains open for GLD to break over the 126 region, on its way to the 130-133 region.

And, as I mentioned last weekend, if the metals are unable to take advantage of the current set up to head to new lows in the immediate future, then this consolidation can potentially continue until the end of 2014, which means that the lower lows I expect may not be seen until early 2015, clearly beyond the time I expected to hit those lows as we were coming into 2014. But, I don't run the market. No one does.

Lastly, I want to leave you with one piece of brilliant advice with which I wholeheartedly agree. Xenia Taoubina, the options expert who runs our options service at Elliottwavetrader.net, this past week posted a succinct and clear perspective to which most metals investors should adhere:

Linear probabilities favor another low in GDX/metals before a multi-year bottom, in my opinion, thus the base case. But, probability-weighted risk/reward for long term positioning favors being long rather than short.

Therefore, unless one is accomplished at trading metals, this is not an environment in which investors should be "trading." Rather, long term investors should be using lower lows to simply add to their long term holdings, especially if we reach the sub-1000 region that I suspect we will see before this bear phase has completed.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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.