Gold Price Probably at a Major Major Top

I have been reviewing the gold price charts recently up to the monthly scale charts and I am seeing enough evidence to suggest that gold is about to head downtown for quite a while.

There is a class C (as defined by Alexander Elder) bearish divergence (between price and MACD) on the WEEKLY scale that looks confirmed to me as of today.  Of course the week is not finished yet, but I am sticking my neck out and will say this is a confirmed bearish divergence right now.   The only way the gold price can avoid this class C bearish weekly divergence is by blasting high by the end of this week well above the 1200 range.

Class C bearish divergences are known to be some of the strongest signals in technical analysis according to Alexander Elder.  And this is not a daily bearish divergence, it is a weekly one.  So that means it should have price trend implications for several months.  The divergence formed over an almost 1 year time frame which gives it a good amount of significance.

If you just look at the price one can also clearly see that it has printed a 2B sell signal on the weekly chart which is another bearish sign and can lead to a swift cascade down in price.

The chart below shows the two red dotted lines that define the divergence and also note the blue uptrend line on this log scale chart that shows price close to breaking down through an almost 2 year uptrend.

spotgold20100706

Assuming the weekly bearish divergence starts to play out as I believe it will, then it should start to curl over the MONTHLY MACD and setup gold for a much longer bear market decline that could eventually take the gold price to the 600 range.

I have always been fascinated by the 50% drop that occurred in 1975 in the gold price in the middle of that major bull market.  That 50% drop from 200 to 100 provided the major CATAPULT and launching point for the mega run to 800.

It would seem that we will need to do the same thing again now.  The gold price cannot just keep going up year after year after year without some type of major mid term consolidation to catapult it to 5000.

Markets need to build cause for new moves and it is becoming harder to see gold spiking to 2000 without a move first to 600.  Gold has after all been going up since 2001 almost 10 years now.

I suspect this decline in gold will be attributed to the worldwide massive deflationary spell during the next 2 to 3 years.  The total debt meltdown will force wealthy speculators to unload their gold holdings to pay for debts and other issues that would arise out of a debt deflation.  Any why not pick on gold as means to pay for some bills?  It has been going up 9 to 10 years in a row!

So from a longer term perspective the gold price could take some major body blows during the next 2 to 3 years (this 50% decline if correctly called by me will likely take plenty of time to unfold, several years… not just several months) during the massive stock market and economy deflation.  But then finally after the governments finally get the upper hand with their money printing they will likely cause a rabid bout of hyperinflation as they overshoot their money printing to overcome the pain of the deflation.

I have been seeing many commercials recently from LOCAL jewelers who are promoting this ‘cash for gold’ biz.  I have not seen this before.  It was always the mainstream companies before, but now it seems like all the locals are trying to cash in as well. 

I have to admit it is VERY HARD to abandon a trade that has been GOOD TO YOU for 9 or 10 years.  I have been trying to get my father to convert his gold to cash recently but he is hesitating and recently told me he is waiting for another up move before getting out.  I am afraid that up move will not come.  So what can I do? Nothing.  Ultimately everyone has to make their own decisions.

In fact if I am correct on the stock market making a serious plunge over the next week or two I would not at all be surprised to see gold break down right along with the stock market in similar magnitude.  But I have to admit that gold has the capability to be equally volatile in both directions.  Is it possible that gold could spike higher by a few hundred dollars in the wake of a stock market collapse?  After all gold is supposed to maintain that safe haven status when everything else is crumbling.  I guess that is one way the gold price could evade all the bearish signals.

So I think it will be key to see how it reacts in the wake of a stock market collapse.  If gold collapses right along with the stock market, then that would in my opinion be a very ominious sign about what it may continue to do for the next few years.

Posted in Commodities, Commodity ETF, ETFS, Gold Market
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4 comments on “Gold Price Probably at a Major Major Top
  1. shrihas says:

    Gold is in Bull market. Usually all such long bul markets end with sudden upthrust. Now basically, Gold Bull is going for last almost decade and will not end soon.

    I am million times sure that we will see a period of at least one month (since gold bull is going on for decade, I am saying one month) when there will be frenzied buying of gold as if no tomorrow. In last two years, when gold was going up, there was never frenzied buying at retail level. I am looking at 100 dollar rise a day for at least three four days in a month. That will be end of Gold Bull for at least a decade.

    As a passing note,Chinese authorities are worried over depreciation in their reserves.

    You are on target for 2.7% rise in market today!!!!

    Great!!

  2. Tom Tom says:

    Shrihas I was thinking the same thing before about the gold market, that we need to see fast vertical price moves that create a blow off and end the run.. Maybe it still will and I will have to change my opinion, but for now I think gold has to prove itself. Perhaps somewhat simple analysis, but I am trusting the weekly and monthly MACD to show the way for the rest of this year…. lets see how they shape up..

  3. kris says:

    The world is in a depression – everybody and their dog denies it – stocks gold silver commodities will all go down more – gold has just recently joined the topping process – yeah its top is in now – tell your dad to sell – and if he doesnt he will listen to you next time and hope you are right next time

  4. Tom Tom says:

    Yes Kris it does look like gold is going to get dumped with everything else. The gold crowd may be the most stubborn bulls of any market worldwide. They are not keen to sell their holdings and are very strong committed in their bullish stance. To damage the gold market it will take some big hits into end of this year.

    My father has been long physical gold since 2004. So it has been very good to him for a very long time. The problem is I don’t believe he ever made an exit plan and after holding it so long and getting annual compound 30% gains it is very hard to let go of what has been so good to you. Not sure if I can convince him. Unfortunately it will probably take a 100 dollar downside drop in gold to get him to act.

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