Gold is Doing the Limbo

“How low can you go…”

I have been following an intermediate term downtrending channel on Gold ($GC_F, $GLD) for several weeks since it broke the 3 year rising channel, as shown in blue on the chart below. After building a bear flag the last 8 weeks, it may now be breaking that flag lower. So how low can it go? It seems clear that 1570 is in the cards now, if not today, if the week closes below 1620. A move below that would be be a change of character to bearish. From there support is found at 1550 and 1485, and both would remain in the downtrending dotted channel. Below that 1425 and 1375 would break the channel unless it takes several months to get there. But looking at the correction that occurred over 2008 the target could be much lower. The 2008 move erased 35% off the price of Gold. Measured against the August 2011 top this could take it as low at 1260, very near the current 200 week Simple Moving Average (SMA) if it had a similar correction. Looked at another way, the move higher into the 2008-2009 Inverse Head and Shoulders corrected by 61.8% before continuing the trend, now 11 years old, higher. A 61.8% retracement of the move to the August 2011 top from the peak of that Head in 2008 would bring it back closer to 1170. Any move this far would likely take a long time to happen. For now mark 1570 in your journals. That is the key to Gold now.

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