While we are firm believers in the fundamentals of gold, and believe that everyone should hold 10% of its personal wealth in physical gold, we are not convinced that a new gold bull market has started yet. There is much more work needed. Let us explain based on gold’s secular chart.
Gold’s secular chart does not look as exciting as most believe. First, $1291 represents the key retracement level in gold’s secular uptrend which started back in 2001. We are no technical analysts, but we believe Fibonacci retracement levels on secular charts are meaningful when combined with other long term trendlines.
Gold’s secular chart has two important trendlines which coincide with the $1290 price level: one representing gold’s uptrend and the other one gold’s correction which started in 2013.
Is it any coincidence that gold is trying to clear $1290 for more than 3 months now, but remains unsuccessful? The hurdle is huge, and gold’s power is diminishing evidenced by the COT data. The most worrisome data point according to our methodology is the COT report which clearly shows that gold’s rally is being capped seriously.
Because of that, we can hardly believe that gold will clear $1290 in a structural way in the short and medium term. A severe correction is in the cards. The only development that will change our view is a structural break through $1290, which means at least one trading week. The downside for gold is $1000.