Gold Market Update – Monday, August 6

Gold has had a rather hard time of it during the past several months, as we can see on its latest 1-year below, but its drop has been proportionate to the rally in the dollar and is therefore unremarkable. What this drop has achieved, which is a useful precursor to a recovery, is to finally flush out the Large Specs, who, after outstaying their welcome, have finally packed their bags and left. This we can see on the latest COT chart which is stacked right below gold’s 1-year chart for direct comparison.

Click on chart to popup a larger, clearer version.

Points worth noting on these charts include the following: gold is now oversold on its MACD and relative to its moving averages and when you couple these facts with the now cleaned up COT and strongly bullish seasonal factors now in play that we will look at shortly, we can see that there is a strong case for gold turning up here, which implies that the dollar will soon drop, so we will look at that later too. The positive divergence of the Accum – Distrib line relative to the gold price over the past couple of weeks is worth noting too.

Taking all of the above into account it is thus very interesting to observe gold’s latest 10-year chart on which we see that its price has dropped down to arrive at the support of a giant Bowl pattern, so, again, this is a very point for it to turn up. The pattern in gold since early – mid-2013 may also be described as a complex Head-and-Shoulders bottom which is not shown here as it would make the chart rather messy, and the Bowl pattern suffices to define what is going on, at least for now.

Seasonally, it could not look better for gold as it has just entered its most bullish time of year, and here we should note that seasonal factors are an important influence for gold, with heavy buying in India ahead of the wedding season being one important factor behind it.

Chart courtesy of sentimentrader.com

The Gold Risk Levels chart, a new one for us, shows, as its name implies, that the risk involved in buying gold here is low. We can see on this chart that there is a good correlation between extremes on it and reversals in gold, both up and down. Whilst it could drop a little more to reach rock bottom, which would involve gold dropping back some more, it is saying that gold is either at or close to a bottom here…