This could be an ugly week for gold.
After peaking above $1560 per ounce in early September, the price of gold has been slowly and steadily declining. It closed Friday at $1,488.
That’s not a big decline – only $72 an ounce, or a little less than 5%. So, nobody’s panicking yet. But, the problem is this decline over the past six weeks has created a rather ominous looking chart pattern – which may be a prelude to a much larger decline.
Take a look…
At the end of September, gold fell below the support of its 50-day moving average (MA) line. This is a bearish development and often leads to several weeks of down-trending action. Many times, though, when a chart has broken below the 50-day MA, it will come back up and test that former support line as resistance before starting a more significant decline.
That’s exactly what happened with gold. After breaking below its 50-day MA a couple of weeks ago, gold bounced back up to test the line as resistance. Resistance held. And on Friday, gold turned lower – which looks to me like the start of a new decline phase.
Notice how all of the various moving averages have coiled together in a bearish configuration – with the 9-day exponential moving average (EMA) trading below the 20-day EMA, and the 20-day EMA trading below the 50-day MA. Energy is building for a big move. And, with this bearish setup, I suspect that move will be to the downside.
That’s bad news if you’re already loaded up on gold. But, it’s good news if you’ve been waiting for a chance to buy.
The long-term case for owning gold is still as bullish as ever. Gold is in a long-term bull market. The decline over the past six weeks, and the decline I expect to come, is simply a correction in that bullish phase. So, any sharp decline from here will be a chance for investors to increase their exposure to gold.
The most obvious support level is down around $1,425 per ounce. That looks like a good place at which to start buying.
Best regards and good trading,
Jeff Clark
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