Mostly, we stick to the indicators in our methodology, which are driven by price action, sentiment, intermarket dynamics and futures market structures. However, exceptionally, we focus on more fundamental aspects. In this article, we’ll cover several aspects, from a very long term perspective.
Fundamentally, we could make the case that gold has made a long term (secular) bottom, one that is about to become very famous. Courtesy of Sharelynx, we see that the 1999 gold bottom “coincided” with a statement from Mr. Brown, who was confident that he managed to push the gold price down with the US and UK central bank. That was right before a gigantic move in gold started. It appeared to be a very strong contrarian indicator.
Today, we see almost the opposite. Although officials are not really talking about managing gold prices, they are talking about the debt and monetary situation. Suprisingly, at the Davos summit, quite some quotes point to the fact that there is a huge concern about debt levels and monetary policy effects. That “coincided” again with the start of a huge price rally in gold, one that pierced through major resistance levels on the daily chart (not on the weekly yet). Will this bottom become famous later, known as the “Davos bottom”? Only time will tell.
For now, what we can observe is that gold managed to break through its 90 WMA (the only technical indicator in our methodology). That is undoubtedly a first sign of a trend reversal. Most likely, prices will come down to retest the 90 WMA, so the most important thing to watch is how gold will behave during the next correction / retracement.
We see that the next correction / retracement could be close, given the COMEX market structure. As the lower pane shows, commercial traders have built up a strong short position (red bars) in a very fast way. According to our interpretation, it means that the COMEX market has built up stopping power. This recovery in gold is still young, and, hence, fragile, so we do not expect to see a continuation of these short levels. Our expectation is that prices will come down, and then it will be key to monitor how fast short positions will be built up as prices will rally again.
We believe there is a very important bottom being set in gold. A correction is probably near, one that will take prices below the 90 WMA, given the stopping power that has been built up in the COMEX futures market. After the next correction, it will be key to watch the evolution in COMEX as prices rally, in order to get a confirmation whether the secular bottom is set.