Peter Hug of Kitco.com, just released a quick note, click here. He succinctly explains how gold could not move above $1222 resistance on Monday, March 2, 2015, and then spent the remainder of the day falling back down. The low came in around $1204, a minor support area. However, overnight, with dollar strength, April gold broke down, hitting stops below $1204 and $1200, and bottoming at $1194.60. Note: The way I see it, someone used the dollar strength as an excuse to place sell programs in the market, selling thousands of contracts in the thin Globex session, to try and do technical damage. Peter Hug rightly points out that strong buying came in to spring April Gold futures back to a high of $1210.50. Note: The reason there was strong buying was likely due to the fact the weakness was manufactured. It was not real. It was short term (legal) market manipulation, that occurs frequently in gold and other futures contracts, where bears and bulls try to wrestle control of the price action. In the long term, the volatility that is created is merely noise. Peter Hug remarks that the resilience of the gold price remains impressive. That is where we differ. I do not see anything impressive about recent gold action, including the spring back from lows hit overnight.
To recap recent price action, on Monday, gold had overnight strength, but stopped at the $1223 area and then slipped during the entire day with rebounds of no more than a couple dollars. Depressing indeed. That $1222 to $1223 resistance area is the minimum price area gold should have rebounded to, with the MACD buy signal coming in on the daily and weekly charts. I would have expected a move to at least $1236 to $1250. Then there was the running of stops below $1204, another disconcerting development. I told my wife yesterday when she was surprised I was buying into the weakness, that no matter how low April gold falls to, I had calculated a rebound to at least $1210.50 and possibly $1212. Well, it turns out we came back to $1210.50. Having loaded up below $1200, I ended up making a nice profit on the rebound, selling out towards the highs. I am now flat and very cautious towards gold.
In my research, I found an article written by Mark Mead Baillie, click here, that sums up the action in gold and silver after two months of trading in 2015. The author points out how it is mandatory for gold to start moving back up almost immediately to rescue the bullish case. Will gold act like a chamelean and change its color? I am not very hopeful based on recent action! In fact, I have to agree with Bernard Stegmueller Jr. click here, that gold is looking more and more like a sell! This trading pro from the pits of Chicago, wants to be long on a close above $1235 in April Gold, but wants to be short below $1220. His indicators are quickly turning from green to red. So are mine. They could quickly be reversed, but so far, it is looking more and more likely that we may need to retest the lows of $1140.
My nature is to be an eternal optimist. However, gold has fallen much harder than it should have fallen during the recent correction from just above $1300. It should have seen an oversold bounce, much greater than we have seen so far. Gold needs to start taking out some resistance levels instead of stopping at them and falling back down. I am writing a warning for bulls to be cautious in here and wait for a better spot to get involved.
The thoughts and opinions in this article, along with all Stocktalk posts made by Robert Edwards, are my own. I am merely giving my interpretation of market moves as I see them. I am sharing what I am doing in my own trading. Sometimes I am correct, while other times I am wrong. They are not trading recommendations, but just another opinion that one may consider as one does their own due diligence.