The End of Gold

Gold (GC) 22. October 2012

Long and Short term charts for Gold (GC) as of 22. October 2012

Gold (GC) has been the favorite of investors since it began to climb the price charts in late 2005, though the rise may be traced back to 2002. The favorite crises commodity was predicted to reach 2,000 dollars, but has so far only just popped over the 1,900 mark. With the tops forming in August and September 2011, the price of gold has not managed to make a firm brake through the 1,800 price tag.

This tunnel, that has been running between 1,520 and 1,800 dollars, has shown some interesting formations.

If we take into consideration the theory that tops are made in threes, we’ve then seen the last top forming the last few days. Of course there are countless instances where tunnels have been running for more than a year, with the breakouts getting stronger the further it goes.

So what else shows up to strengthen the idea that this run is all but over?

If we look at the daily chart, we see a nice arc forming in the last top, an arch that would suggest a fatigue in the market. I would not be surprised that this top is the last one before a downward break.

Of course we have to take into account the fact that gold has always been the commodity of choice when dire times are at hand, and we are definitely witnessing such times. We see the Eurozone going through difficulties at least the coming year and the situation in the US is also fragile. These facts and the feeling of insecurity in the markets, is bound to keep gold in the upper price range.

But then again, the way gold has not been able to break through the 1,800 barrier, even in such economically uncertain times as we are witnessing now, it’s obvious that gold does not have the power it needs to continue.

What might be stopping gold is the fact that there are more contracts for gold, than there is physical gold around. What happens when the owners of these contracts need to get out of them. We know that a lot of the contracts are owned by speculators that are tight on funds and can’t maintain their positions for a long time without increased profit. Tunnel traveling is not a situation in their favor.

So we are back to square one it seems. Usually when that happens, I tend to favor the simple analytical tools such as the basic formations. A tunnel break-out is therefor something I believe we should be looking at. So a firm break-out above could mean a race for the 2,000 mark, something that could be a good possibility if the economy takes a second dive.

If, on the other hand, the break-out is on the short site, we could be looking at the end of the run and a drop to the 2002 to 2005 prices could be at hand. The break-out through the bottom could therefor mean the end of the Golden Era.

But then this is just my view on the situation and like I always say, don’t take my word for it, do your own research.

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