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Gold Market Plunge Technical Analysis

Commodities / Gold & Silver Oct 24, 2008 - 12:51 PM GMT

By: Mark_OByrne

Commodities Best Financial Markets Analysis ArticleIt was déjà vu in the Comex gold market yesterday as the recent sharp selloff continued. Bearish sentiment remains at extreme levels and all notions of fundamental value are being thrown out the window as the financial crisis morphs into a global economic crisis. Stock, commodity and many currency markets internationally are in meltdown on panic selling.


Both gold and silver are off another 4.3% and 8% today on massive deleveraging and wholesale panic selling in financial markets. The Nikkei fell nearly 10% overnight and stock markets in Europe are crashing this morning (FTSE down 9% and DAX down 10.5%). Gold's remains resilient vis-à-vis stock markets especially over the medium term to long term (as seen in the Performance Table).

Gold and silver continue to sell off despite still very strong demand, shortages and increasing tightness in the physical market. The tightness is spreading from the small coin and bar market up to the larger bar market and premiums on larger bars such as 5 kilo bars and 100 oz bars are also increasing. Gold lease rates remain very high on increasing concern about counterparty risk in the gold market.

A 1929 style severe crash of some 90% in some stock markets is looking quite possible and some noted commentators are saying that if the panic deepens there will be market closures for a period of time – possibly as long as a week or two.

It is hard to know what such unprecedented actions might achieve besides delaying further sharp falls in markets. But the hope is that some form of calm would be achieved. Although already shattered consumer confidence would likely be further severely damaged if financial markets were actually closed for a period of time in enforced ‘bank and market holidays'.

Technical Analysis
As you can see from the graph the break of support at 732 (May 06 resistance) opened up a move down to 700 (Apr/May 07 resistance). This strong resistance level proved good short term support with profit takers/ short term players positioned just below this level in size causing a short term bounce back over 730. Momentum remains strongly to the downside and we will have to watch very closely to see if momentum wanes between 675 (uptrend support from Jan 06)and 660 (downward resistance May 06). From the graph you can also see that this was an area of major congestion for the gold price in 07.

Given the still very strong fundamentals  and the huge demand for physical bullion internationally, we should start to lose downward momentum soon with a period of consolidation, of undetermined length, before we resume the uptrend. Look how closely the move from Aug 07 to today resembles a larger scale version of the move from Nov 05 to June 06, further consider what happened after the June 06 low was in.

This is just dollar based analysis and it would be interesting to consider the technical analysis of €/gold and £/gold, considering that in Sterling terms gold was at one stage higher today than yesterday despite $/gold being down a further 4%.

RSI's suggest that gold is becoming very oversold and the usually reliable moving average tenors have been destroyed as support, however these are technically termed “fast markets” with unprecedented volatility, so anything is possible.

OPEC just cut production by 1.5 million barrels a day so watch the rally that should

By Mark O'Byrne, Executive Director

Gold Investments
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Gold and Silver Investments Ltd. have been awarded the MoneyMate and Investor Magazine Financial Analyst of 2006.

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We focus on the medium and long term global macroeconomic trends and how they pertain to the precious metal markets and our clienteles savings, investments and livelihoods. We emphasise prudence, safety and security as they are of paramount importance in the preservation of wealth.

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Disclaimer: The information in this document has been obtained from sources, which we believe to be reliable. We cannot guarantee its accuracy or completeness. It does not constitute a solicitation for the purchase or sale of any investment. Any person acting on the information contained in this document does so at their own risk. Recommendations in this document may not be suitable for all investors. Individual circumstances should be considered before a decision to invest is taken. Investors should note the following: The value of investments may fall or rise against investors' interests. Income levels from investments may fluctuate. Changes in exchange rates may have an adverse effect on the value of, or income from, investments denominated in foreign currencies. Past experience is not necessarily a guide to future performance.

All the opinions expressed herein are solely those of Gold & Silver Investments Limited and not those of the Perth Mint. They do not reflect the views of the Perth Mint and the Perth Mint accepts no legal liability or responsibility for any claims made or opinions expressed herein.

Mark O'Byrne Archive

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