Price Action Over the Past Week
The market followed through to the downside right towards our long term support regions we have been noting since we identified this corrective downside action. And, GLD has even dropped slightly below it.
Anecdotal and Other Sentiment Indications
For years we have had to suffer through one seeming correlation after another being the "certain" catalyst for what moves the metals. We have heard that when equity markets go up, metals go down. We have heard about demand in China and India. We have heard about conflicts in the Middle East or Russia. We have heard about the Fed. The problem is all of these are pure fallacies if one actually looks at the history of the price patterns of gold in relation to these issues. And, now, the flavor of the day seems to be interest rates.
Yes, bonds topped around the same time as the metals topped in 2016, and both have been in sizable downtrends ever since. And, yes, Elliottwavetrader.net warned our subscribers of the impending bond collapse on June 27th with our analysis entitled "Beware of Bonds Blowing-up," with the bond market hitting its top the first week of July.
So, of course this MUST mean that when interest rates rise, gold falls. Right? Well, if one understands that correlations do not equate to causation, then one must answer "no."
Moreover, we have seen seeming "correlations" last a few months. And, during that time, people became so certain of the correlation being the causation of the metals movements, they began to "bet" their money based upon these seeming correlations. Yet, what happens time after time is that the correlation disappears just as quickly as it appears, leaving these gamblers (because they are clearly not investors) holding a bag of losses.
So, let's look at a little history, shall we? Back in 1981, when gold topped around $600, we saw that interest rates were hitting the highest level in over 100 years at over 14% (with prime rates, Fed Fund rates, and mortgage rates at even higher levels). But, I think we all recognize this as being the major top in interest rates, with rates dropping ever since until this past summer.
So, based upon the correlation logic regarding rates, I would assume that the absolute top in the gold market was struck in 1981. Right? Again, we all know the answer to be "no." I think we all know that while rates have been dropping since 1981, gold more than tripled since the highs it made in 1981. Are you scratching your head yet? Well, if you are investing your money based upon this correlation, you certainly should be.
Maybe there is another "correlation" that works better? Well, last week, there was a gathering of over 4,500 Rabbis in Brooklyn, New York. Could this spiritual gathering "cause" G-d's countenance to shine upon the gold market and provide us with a local bottom in the market? Hey, you never know. I think it is just as feasible a reason as any of the others I have seen presented over the years.
Price Pattern Sentiment Indications and Upcoming Expectations
There is no question that the GLD has dropped slightly below the ideal support I wanted to see hold, but it quickly recovered. It seems that many in the market have been focused upon that .618 retracement region, and, once it broke in gold, many more have now thrown in the towel for the metals market.
But, the current structure still suggests that we have either bottomed or are bottoming. While the GDX and silver seems to still need that lower low, GLD MAY have completed its bottoming. But, unless all are aligned, it is hard for me to be more certain. So, yes, that dreaded one more lower low may still be looming before we see that turn around in the complex. As difficult as it is, I am still trying to maintain a bit more patience with this pullback. But, take note that we are now in the region we presented months ago as to where this market can form a bottom in what I still view as a corrective pullback for now.
Disclosure: I am/we are long PHYSICAL METALS AND VARIOUS MINING STOCKS.
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.
Additional disclosure: My long positions are still hedged until a new uptrend is confirmed