In a recent previous report we examined the gold futures daily chart (basis August) and noted the prominent “descending triangle” formation. An analyst with Bank of America drew widespread attention to this pattern in a recent forecast, and the triangle projected a downside move to approximately the $1,250 area based on chart measurements. Gold in fact reached – and slightly exceeded – the $1,250 minimum downside projection as you can see here, hitting $1,245 in overnight trading.
Keep in mind that the $1,250 area is the minimum downside projection. It wouldn’t surprise to see additional spillover weakness over the next few days as investors’ emotions get the better of them. There is still a lot of unloading taking place by smaller investors who loaded up on gold back in April and this is being compounded by the deluge of bearish research reports being released almost daily by major banks (as mentioned above).
Investors will need to exercise patience and wait for the gold market to bottom out on its own time. We’ll be closely monitoring the market for clues that the capitulation has finally ceased and a new accumulation phase begun (which will eventually take place once the weak hands are completely out of the market).