ChartWatchers

Gold: A Chance for a Bottom

 | 

After making a bear market low in June, gold rallied about 20%. Then from the August top, price headed back down for a possible retest of the June low.

There is a good chance that the retest will fail, sending bear market prices to lower levels, but there is also a good chance that a double bottom will form, possibly setting the base for a new bull market in gold. Price is currently pushing into the apex of a falling wedge formation. If it breaks up through the top of the wedge, which is the technical expectation, that would be the first step in forming the bullish double bottom.

6a0120a65d6eb8970b019b024342e0970d-800wi

The weekly chart presents a better perspective of the potential double bottom, but the weekly PMO is falling and has just generated a crossover sell signal.

6a0120a65d6eb8970b019b02427983970c-800wi

Another element is the current sentiment on gold. Central Gold Trust (GTU) is a closed-end mutual fund, which means that it trades like a stock on the NYSE. The fund owns only gold -- the metal, not stocks. Closed-end funds trade based upon the bid and ask, without regard to their net asset value (NAV). Because of this, they can trade at a price that is at a premium or discount to their NAV. By tracking the premium or discount we can get an idea of bullish or bearish sentiment regarding gold.

Currently and for several months, GTU has been selling at a substantial discount, so we would say that sentiment is sufficiently bearish for a rally to begin.

6a0120a65d6eb8970b019b0243b154970d-800wi

Conclusion:  The possibility fo a double bottom in gold is just that -- a possibility. The approaching support presents an opportunity for a trend change, so we will be monitoring the situation closely. 

Carl Swenlin
About the author: is a veteran technical analyst who has been actively engaged in market analysis since 1981. A pioneer in the creation of online technical resources, he was president and founder of DecisionPoint.com, one of the premier market timing and technical analysis websites on the web. DecisionPoint specializes in stock market indicators and charting. Since DecisionPoint merged with StockCharts.com in 2013, Carl has served a consulting technical analyst and blog contributor. Learn More
Subscribe to ChartWatchers to be notified whenever a new post is added to this blog!
comments powered by Disqus