Gold: One More Drop

Includes: GLD
by: Avi Gilburt

First, I want to thank all of you for your kind emails and wishes for my wife's recovery. Unfortunately, due to family needs at this time, I have not been able to publish of late, and I hope to return soon to writing regular posts.

As for gold, until now, I had been expecting a strong rally in the metals. In truth, I had initially expected it to begin in the spring. However, here we are in the summer, and we have not seen the parabolic rally that I have been expecting. Yet, we seem to be slowly "leaking" downwards, which is not the usual manner in which the metals move. However, I am still of the opinion that it will likely begin in the not too distant future.

I had said in numerous articles that if either of the metals breaks down below their December 2011 lows, it would cause me to re-evaluate my position on the metals. While I will not go into detail about the Elliott Wave pattern I am following, I will say that it looks likely that one more low in gold will yet be seen, and the start of that last decline may begin within the next two weeks.

First, as far as seasonality is considered, I believe that the fall has been a traditional time for large advances in the metals. Seeing one more low in gold over the next month or two will likely set it up for that rally which can then be seen in the Fall.

Second, my expectations lately have been that the dollar should decline in a corrective fashion over the last half of the year. While there may yet be one more high that can be hit within the next month, we will likely see the dollar drop, which some feel has a positive effect for the price of the metals. While I do not subscribe to such a theory, as we have seen gold rallies whether the dollar has been going up or down, it is still something interesting to note.

Third, the sentiment regarding the metals is beyond bearish. These levels have not been seen in decades, and tells us that gold is ripe for a reversal, but still may need one more wash out drop to trigger the reversal.

As far as the targets for GLD, I am still potentially expecting a small rally to complete within the next week or two, which can take GLD to either the 159 level or as high as the 161.75 level. It is from this region that I will be looking for a decline which can target the 144 region for the final move down in GLD, before a potentially parabolic rally were to begin.

In truth, when the market began its decline from its highs last year, I noted that the 143/144 region would be a high probability target. I was actually left scratching my head when I had to call a bottoming pattern complete last December, since it did not hit the ideal Fibonacci target region. Well, it sure looks like the market is being drawn back to complete that pattern and hit the target region.

However, if the market were able to move over the 161.75 level on large buying volume, then this would invalidate the pattern that I am now seeing that will take GLD to one more low.

Disclosure: I have no positions in any stocks mentioned, but may initiate a short position in GLD over the next 72 hours.