Gold Market Update

By Clive Maund, GoldSeek

In this Gold Market update we are going to “cast our net wide” and consider the outlook not just for gold and PM stocks but also the dollar, other commodities and the the broad US stockmarket. The reason for this is that COMMODITY AND STOCKMARKETS ARE AT A CRITICAL JUNCTURE AND MUST REVERSE TO THE UPSIDE IMMEDIATELY to avert the risk of a catastrophic decline, similar to 2008 or even worse. The severe deterioration last week, which included a sharp breakdown by copper and PM stock indices starting to break down, and also the erosion of critical support in commodity and stockmarkets generally, has greatly increased downside risk. Should these markets accelerate into freefall, it will mean that the specter of deflation has come back to haunt the markets.

We will start with a look at gold. On its 1-year chart we can see that it is in a potential Descending Triangle pattern, and actually did quite well last week to hold up above the support at the bottom of it, considering the sharp breakdown in copper and the strength in the dollar. If it is a genuine Descending Triangle, then it will go on to break lower, although there is some chance that the pattern is instead a large bullish Pennant. A break below the support at the bottom of the Triangle would be expected to lead to an immediate drop to the next support level in the $1010 – $1030 area, which is a particularly strong zone of support as it runs along the top of the large 20-month consolidation pattern that led up to the advance late last year, that could put a floor under gold and turn it up again. However, should this support later fail it would be a very bearish development for the intermediate-term that would be expected to lead to further heavy losses. One possibility here that is suggested by the deeply oversold condition of other commodities/stock indices, is an immediate weak rally back up to the red descending trendline that could then be followed by breakdown.

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