FX COMMODITIES
Now, the immediate pressure is definitely on the downside as the prices are below the declining 21-week (red line), 100-week (blue line) and 200- week (green line) moving averages. Te most likely scenario based on the moving average approach is shown on the chart. I expect a move down towards $1000 where gold is likely to form a Medium-Term low in the 1st quarter of 2014. Ten we may see a powerful rally back towards $1400/1500 before the long-term negative trend resumes.
LOOKING AT GOLD STOCKS
One good way to confirm the trending conditions in gold is to take a look at the trend in gold stocks. I am sure most of the traders on the forex market that
trade gold do not look at gold stocks as they simply do not follow the stock market trends. But I have found over the years that while gold stocks follow
While gold
As you can see from the GDX weekly chart, there is no sign that gold stocks have already made a bottom. Actually, the picture is
stocks follow the
trend of gold, they usually lead near the trend turning points
the trend of gold, they usually lead near the turning points. Tat is, if they bottom out and rally for some time while gold continues lower, it is likely gold to eventually turn up. Let’s see the current trend in gold stocks that is best reflected in the gold stock ETF – GDX.
quite the opposite: gold stocks have now broken down from a several month consolidation pattern. And that means gold is more likely to continue lower in the next few months. At least that’s the message gold stocks are sending us now.
CONCLUSION
Every piece of evidence that we have suggests that gold is now in a multi-year bear market that is likely to eventually bring prices down to $700. Shorter- term - gold is likely heading for a bottom near $1000 from where it may recover sharply for several months in 2014. Of course, the fact that all charts are showing the trend is lower, is not a reason to be complacent and expect easy money on the short
side.
As always, our job should be to be positioned correctly with the prevailing trend, but
also
to manage our emotions and to manage risk properly.
CHART 3: Gold Stocks ETF – GDX for the past 3 years Source:
stockcharts.com Alexander Nikolov 56 FX TRADER MAGAZINE January - March 2014
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