While the long-term outlook for gold could hardly be better, the short to medium-term outlook deteriorated substantially last week, with an important chart reversal on Thursday that was not negated by Friday’s bounceback, latest COTs coming in very bearish with record readings, and the $5,000 an ounce gold crowd hawking their wares more aggressively than ever – it’s not they are necessarily wrong, it’s just that they are naturally most vocal at tops, when they can suck in the most hopefuls.
As you may know, we have not been raving bullish on gold in recent months, largely because of the offputting COT structure, and this was not an unreasonable stance given that gold has only risen by about $20 from its early March highs as we can see on its latest 6-month chart below. Last Thursday was an important day for gold; in the early trade it advanced to new highs, but reversed violently intraday to close well down on the day on high volume, leaving behind a classic “shooting star” reversal on its chart. As we can see it didn’t reverse where it did by chance – it reversed right at the restraining upper boundary of the pattern that has formed over the past several months – and it is now becoming increasingly clear that this pattern is a flat-bottomed broadening formation. These patterns are normally bearish in purport, although the price sometimes leaps out of the top of it and spikes before reversing and dropping hard. This interpretation is supported by the latest COTs, which look horrendous, it has to be said, which we will now take a look at.
….don’t miss Victor Adair on Crude Oil Hits Its Peak