Well the week opened 14th May 2012 with gold at $1586 and closing at $1590. A 4 dollar change you say. Yes, but it belies the fact that gold tumbled to a 4-month low of $1526 Wednesday before charging back up $64 over the tail-end of the week.
When looking at the weekly chart this week’s candlestick comes at the end of a 12-week downswing and has the features of the bull hammer trend reversal indicator. A bull hammer occurs after an index has been declining, possibly suggesting the market is attempting to determine a bottom.
As with any single candlestick, confirmation is required but the fact that price falls much lower than the open and then subsequently closes right back near the opening price reduces the confidence of the bears.
Just look at the chart below and notice how two significant rallies in gold started after the weekly bull hammer candlestick was issued.
In more news that should buoy the bulls, the World Gold Council’s annual report in February indicated that global demand for gold surpassed $200 billion for the first time in 2011 and more recently Marcus Grubb, Managing Director (Investment) at the WGC, said Chinese demand over 2012 is expected to outstrip that of India. Both these countries account for about half of the world’s gold demand combined.
Back in Europe, the euro slid to a 4-month low against the greenback and is expected to remain under pressure as concerns grow about problems facing some periphery euro-zone banks and the prospect of contagion if Greece exits the euro.
IMF chief Christine Lagarde warned of “extremely expensive” consequences if Greece were to leave the euro-zone, a once-taboo possibility that European leaders have begun to discuss openly given the nation’s political crisis.
A weaker euro makes dollar-priced commodities such as gold more costly for euro holder.
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How Much is Gold Worth Today
Today has been another big down day for gold. As if dropping below the psychological $1600 level was not enough, gold seems intent on paying a lingering visit to the mid $1500 range.
Those who entered the market in the last 6-9 months are lamenting their fate. Markets have a habit of finding buyers when they are accelerating upwards. No doubt as gold sped towards $1900 back in August 2011, investors were jumping on in the fear that if they do not get in now, they will miss the boat completely.
Of course we all know what happened next. The big upward surge was followed by an almighty downward correction in which gold toppled over $300 within the space of 3 weeks, representing a shift of over 15% from the peak.
Since then for the last 6 months it has meandered nonchanantly in a long, uninspiring and drawn-out consolidation. A brief rally early in the year was cut short at the $1800 mark.
So where now? Well this is where the battle lines are drawn. The Bears are out and will be revelling in the carnage. (Of course they are the same Bears who said gold would never surpass $1000 but we will overlook such trivialities).
The Bulls amongst us need to stay firm and have belief in the fundamentals that have been driving this secular bull for the last decade.
The keyword here is secular. Secular trends are a phenomena that last for years. They do not turn around on a whim or on short-term cyclical and seasonal patterns. Even the financial debacle of 2008 did not derail the gold bull. Until a secular trend is shown to be broken, it is understood to still be in play.
Chart below shows that we are right at the trendline that has held for the last few years. Gold needs to put a final bottom in and bounce out of this zone.
With the traditionally slow Summer months ahead however, a big move upwards may be unlikely. Still we may yet be in for a real treat. Following the Summer will come the Fall and gold may be lining up for a big seasonal rally out of this quagmire.
