The following article was originally published on April 2, 2013.
Gold closed sharply lower today, breaking below congestion support in the 1,600 area and moving down toward previous lows of the downtrend from October.
Our Gold Currency Index (NYSE:GCI), which tracks the intrinsic value of gold as an international currency, closed sharply lower as well. The slight positive divergence that had developed between the GCI and gold in US dollar terms during the last few weeks remains in place, but both daily charts now favor a return to previous lows of the downtrend from October.
With respect to short-term cycle analysis, the sharp decline today indicates that the latest short-term cycle low (STCL) likely formed on March 26. Cycle translation remains in question and price behavior during the next several sessions will likely provide the next signal with respect to short-term direction.
Moving out to the intermediate-term view, the rebound off of the latest intermediate-term cycle low (ITCL) in early March has struggled during the past two weeks, indicating that a half cycle high (NYSE:HCH) may have already formed during the week ending March 22.
The long-term correction from September 2011 has developed into a consolidation formation that favors an eventual resumption of the secular bull market from 2001.
However, the consolidation formation is continuing an important test and market behavior during the next few weeks could provide a meaningful signal with respect to long-term direction. Therefore, it will be important to monitor daily price behavior closely.
Disclosure: I am long SGOL.