As mentioned likely in my prior article, “Gold Chart: Cyclically An Important Week In Gold”, published earlier this month, trading in the gold market that followed proved of great interest to gold market participants worldwide, and price action in the gold market has since generated a plethora of analysis, commentary, and buzz.
The price of gold fell significantly, trading down from around $160 on the GLD ETF to a low this past week below $151, a fall of over 5.5%.
Gold market bears took strong command of trading during this period, apparently bolstered by concerns of echoes last spring’s price weakness, relative strength that came into the dollar and price stabilization that occurred in treasury bonds during this period this year, and the occurrence of no international financial or geopolitical upsets strong enough to prevent this 5.5% decline in gold’s price.
Apparently, when gold broke the $158.5 on the GLD, enough bulls started to capitulate, and began pulling their bids in order to re-establish their efforts at lower levels in the following week.
Threats of “sequestering” in the U.S. did little to prevent gold’s decline or fuel any additional bullish demand during this otherwise troubling period.
This week gold is trying to ‘make a price come back’ from this period of seasonal ‘February weak price finding.’
In other article’s published this past weekend, other authors began to point out that in recent years February has proven to be either a price bottom or a price top going into the summer, and this year February gold seems to them to look more like a price bottom than top. They may be correct; however, I would like to temper their risk-on enthusiasm by again mentioning that gold has a history of potentially greater volatility this time of year, and going into summers, than they may currently be crediting it with.
A closer look at May, the end of June, and the beginning of July during each of the last four years will bear this out. See the chart below.
So, regardless of whether or not the GLD $150 area provides support this year (it has since the end of 2011), I would tend to remain cautious of a potential second wave of price weakness coming this year as we enter into May; for, gold appears now to be fundamentally and cyclically primed to search again then for first half-year 2013 momentum lows. Longer term risk-on positioning between now and then may have few rewards.
Last year provides a good case in point. Between the beginning February 2012 and the beginning of May 2012, the GLD lost about 10 points. Then, from the beginning of May 2012 to the end of May 2012, the GLD lost about another 10 more points in a significant second price wave downward before heading sideways, and building up a genuine and corrective pre-launch stage for a significant price pivot and rally into the fall season.
Whether from lower lows, or from higher lows, I presently prefer to wait for this seasonal price down-pressure to clear before becoming potentially enthusiastic about a long position in gold going into the second half 2013.
Waiting until about the beginning of July has been a very good annual ‘risk-on’ and risk-management strategy to follow in gold since 2009.
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