Decline May Not Be Over

That's the point made by Przemyslaw Radomski, after studying recent chart patterns that resemble current action. The chart he uses is for the SPDR Gold Trust, a good match for gold itself. He concludes that, after a substantial drop, which pushes gold decisively into oversold territory, a relief rally ensues. However, the decline re-emerges and pushes gold down even more. That's been the pattern of the last three drops before the current one. He concludes that, although those precedents do not provide a sure guide to what gold's going to do now, there is a real risk that the gold price will drop below the December low of about US$1,085 once the current rally ends.


It's something to think about. Two of the three precedents he uses are post-financial-crisis; they're from last year. The first precedent took place in August and September of '08, when the stock market plunged after Lehman failed. The second one took place in March and April, when the stock market exploded upwards. The third took place in June and July, when other assets driven by inflation (most particularly, crude oil) slumped; so did the stock market. Each occurred in the backdrop of different market conditions, but two of the three accompanied a drop in the stock market.

One more note: in the latter two, the gold price didn't bottom out all that much lower from the initial drop's bottom. I think Radomski knows it, as he makes clear that long-term investors should keep their eye on the long-term ball.