The bigger patterns still suggest I maintain a larger degree bullish outlook on gold. But, until we have another breakout set up develop (which can still take us several months), I have to keep such bullish expectations in abeyance, writes Avi Gilburt on the weekend.
For those who follow me regularly, you will know that I have been tracking a set-up for the SPDR Gold Trust ETF (GLD), which I analyze as a proxy for the gold market. I also believe that gold can outperform the general equity market once we confirm a long-term break out has begun.
While I have gone on record as to why I do not think the GLD ETF is a wise long-term investment hold, I still use it to track the market movements. For those that have not seen my webinar about why I don’t think the GLD is a wise long-term investment. Review this link for my webinar on the matter.
When we look at overall indications within a market, we often look to highly visible signs of either an overheated market or one that is oversold. In the case of metals, we often look for strong signs that the market is at maximum bearishness, or at least enough to strike a long-term bottom.
When the market was striking its highs in 2011, the bulls were touting how the market would certainly continue through the $2,000 mark because “governments were buying gold.” However, back in 2015 and early 2016, I wrote several articles regarding the signs of a major bottoming in gold, such as when governments are selling gold. Remember “Brown’s Bottom?”
At the end of October 2015, just as many miners had struck their respective lows, I was highlighting how Venezuela was selling a significant amount of its gold and that it could be a sign similar to Brown’s Bottom. And, not long thereafter, we read about how the Bank of Canada divested itself of all its gold.
Well, last week, I think we saw a smaller degree indication of the negative sentiment in the metals market. Vanguard will be sending correspondence to investors of the Vanguard Precious Metal and Mining Fund (VGPMX) stating that they will be renaming its Vanguard Precious Metal and Mining Fund to the Vanguard Global Capital Cycles Fund. The investment strategy will shift from investing 80% in mining companies, 20% directly in precious metals to 25% in mining companies and 75% broad global stock market exposure with an affinity for commodity-oriented companies.
Again, while this is not exactly akin to the news regarding Venezuela and Canada, it certainly is a major news event which evidences the deep negative sentiment regarding the metals complex. And, we see news like this near major bottoms in the market.
As far as the overall structure in GLD, I do not have any clear indications that a low has yet been struck. While silver broke those positive divergences, the GLD has continued down in the weakness I noted can still take weeks until completed. And, even if we see a rally back up as high as the 118 region in the coming week or two, I still think we will need to see lower lows relative to those struck on July 19th before I would be able to turn immediately bullish again.
Support now resides between 113-114 in the GLD, with resistance at 118.30. I would want to see an impulsive rally begin once that support is struck. However, should that support break, it opens the door to an even deeper pullback towards the 105 region. Yet, I don’t see that deep a drop as highly likely at this point in time. But, I will continue to follow the clues left by the market in the event support is unable to hold.
And, as I continually warn, stay away from leverage (options and 3X ETFs) until the market confirms the breakout set up and the heart of the 3rd wave rally.
See charts illustrating the wave counts on the GLD.
Avi Gilburt is a widely followed Elliott Wave technical analyst and founder of ElliottWaveTrader.net (www.elliottwavetrader.net), a live Trading Room featuring his intraday market analysis (including emini S&P 500, metals, oil, USD & VXX), interactive member-analyst forum, and detailed library of Elliott Wave education.
