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).
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