Gold Looks Ready for a Reversal

 | Dec 14, 2011 | 12:20 PM EST  | Comments
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gld

Going against the crowd can be lonely and terrifying, but that looks like it could be the right move with gold. 

In the last few days, the news has been uniformly concentrating on the precipitous drop and its inevitability because the public was so widely buying the concept that gold was a safe haven (and perhaps the only safe haven in a tumultuous marketplace). This overdone public participation was being put forth as the reason for the sharp decline, and it was leading to prognostications of a much bigger drop. 

Perhaps there is some truth in the above excuses, but gold has returned to a zone that has a history of providing support. Gold, like everything else, is a supply and demand market and the current drop seems to have taken prices to the level where demand appears likely to come back into control.

 

S&P Gold Trust (GLD) -- Daily
Source: MetaStock

 

Looking at the SPDR Gold Shares (GLD) as a proxy for the price of gold, note where the posting just went. It was the resistance level in May on the way up.  Once it was overcome in July, it led to a substantial breakout and advance. 

The gold market became very overbought in August, leading to a major drop.  But now after a partial retracement, we are just below the support hit then, which was the resistance of May. 

I am not suggesting that the drop is meaningless, nor am I suggesting new highs. Nor am I suggesting it as a long-term buy as a hedge in here. But I am seeing a market that is overdone, that is in a support area and that appears ready for a reversal. I note also that the RSI the upper indicator on the chart is at an extreme. In the past, such a reading has alerted us to an imminent rally.

This is only a market for the most aggressive and there is no point in trying to call a turn that may not immediately occur, but I am suggesting that anyone who is able to assume such a volatile situation could become a buyer just as soon as any sign of support appears. I would anticipate a return to the descending upper trendline indicated on the chart, which would represent a sizable gain.

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