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Bearish Case For Gold, Technical And Fundamental.

|Includes:SPDR Gold Trust ETF (GLD)

Gold has been on minds (and apparently accounts) of investors, speculators and general population quite a lot lately, rising my contrarian antennas and prompting this review of current technical and fundamental setup for gold.

Gold made a top in early September 2011 (yes, over a year ago) at $1923 per ounce and suffered a precipitous drop to its 200 days moving average at 1530 within the same month. Since then it has been oscillating in a broad range finding support at around 1530 and resistance at 1800.

The latest upswing that started in the Summer of this year failed to break out through the 1800 level for the third time- a bearish development. After recent drop from the unlucky 1800 level, gold found expected support at 200 days moving average printing a nice bullish engulfing candle, but not penetrating above 50 days moving average at around 1750. Last week gold backed off from its recent high again and got support at the round-number of 1700. Now, the 1700-dollar question is where gold is going from here.

The simple, objective and truthful answer to this question is that nobody knows: no single pundit, gold-bug, analyst, adviser, astrologer, blogger, Mr. Bernanke or me, knows where gold is going next.

However, if you turn to the media, including internet, there is a broad chorus of voices quite convinced that the only way for gold is up, to $2500 in 2013 or higher, citing the relentless money printing of our FED, bearish perspectives of the US dollar and slow but sure recovery of the housing market. Investors seem to be following dutifully putting their money in gold, with the most broadly held gold ETF GLD relentlessly hitting new records of the amount of gold it is holding: at 1340 tons in November 2012. That compares to the holdings of 1232 tons in September of 2011 when the actual top was made and 1282 tons in May of 2012 when the last rally off $1530 started. So let's do the math: 200 dollars down from the top and 100 ton-plus more in GLD holdings. Is this the smart money accumulating? Possibly but I sincerely doubt.

Let's do a forensic exam what brought the "golden bull" to live and fueled it in first place. Some would say that after 20 years of bear market it was simply time for the bull to be born, and it was my main view over 10 years ago, when I became bullish on gold. However, with the perspective of time and events, a nice chain of events can be coined together. The chain is made of financial/economic troubles that were remedied with government and central bank response to undo those undesirable conditions. The first identifiable link was the Asian financial crisis of 1997-1998 that was "solved" during the 1998 market meltdown by central banks intervention. That stimulus in turn put a fan onto the already bubble-ready NASDAQ that ended up in the burst in early 2000 and a bear market that followed, which was again met with more easing and interest rates cuts. Along the way a tragedy of 9-11 was inflicted on our country and two wars were staged in response to that, resulting in countless billions of dollars being spend inside and outside of the country and dollar depreciation. Well, with low interest rates and forceful government spending, a bubble in the housing blossomed, bursting of which caused banking collapse and another forceful central bank and government interventions acronamed as TARP and QE (1,2,3...). With all of that, 2000-dollar gold seems to be natural and granted. So, why did it topped in 2011 and why should it not be going up?

For the careful reader of this text, it should be quite obvious. Simply, most of the conditions that had driven this bull market in gold, have (let's put it this way) expired. The wars are either over or drawing to their conclusions. There is no housing bubble with it's credit and liquidity excess. Bailouts and hand-outs have been already done and the government is rather looking to recover the money spend on those. QEs were front-loaded and the latest one is just a muddle-through QE. Interest rates are and have been at a rock-bottom for a while. Elections are done and all parties are seemingly bent on rising taxes or cutting spending or both.

So the real question is what are those folks who think that gold will keep going up are thinking? I guess they follow same logic as at the top of the NASDAQ and housing bubbles- extrapolating current trend to infinity (never mind that the trend has already had changed over a year ago).

Having said all that, there will be a time that conditions for gold will turn favorable again and the bull will resume. There could be another war on the horizon. When the upcoming bear market in equities and commodities gets fully recognized politicians will scramble again and come up with more stimulus over and over again.

In the meantime, let's look at the life-time chart of this bull to see what may be coming, on the bearish side.

There is a support trendline rising from the initial trajectory of this bull that is currently at $1000, give or take. If that seems excessive, there is a precedence in the last gold bull market of 1970's, where after reaching a high of $197 in December 1974, gold collapsed to $103.5 in August 1976, before resuming its uptrend (just divide by 10, it would be quite eerie if this prediction were fulfilled).

It may be surprising to some, but the secular bull market would still be intact if gold pulls back to this trendline (without breaking it), and in my humble opinion it would be the most likely target of the correction. So here it is: bearish confession of a gold bull. Please have it for your thoughtful consumption.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Stocks: GLD