Last weekend I wrote "While I remain neutral on gold in the short/medium term, another session similar to Friday’s will probably be enough to turn me bullish on all time frames" - today we not only got another large sell-off, we got the kind of capitulation washout that is indicative of a major short/medium term low being close at hand. Moreover, the $1550 level has provided major support over the past couple of years- let's go to the charts:

Click to enlarge

Gold_Weekly_2.20.2013

The media has also made a great deal of commotion about the so called "death cross" which is occurring on the gold chart. This means nothing more than the 50-day moving average is crossing below the 200-day moving average - to say the least, the predictive value of "golden crosses" and "death crosses" is very much in question. In fact, in September of last year we received a "golden cross" as gold was near $1800/ounce and this turned out to be one of the worst times on record to buy gold.

Here are the facts surrounding gold as they currently stand:

  • Sentiment is at its lowest levels in a very long time with the average marginal speculator positioned short
  • Gold has fallen over $100/ounce in less than two weeks
  • Long-term support lies just below current levels at $1550
  • The Federal Reserve is unlikely to reverse monetary policy anytime soon and there is significant potential for inflation expectations to become unhinged as the Fed remains behind the curve
  • Today's volume in gold futures (April contract) and the GLD is characteristic of a "washout event"

Gold_futures

And if you need any further evidence that a washout capitulation in the gold space is at hand, look no further than the gold miners which have gapped completely below their lower 2-standard deviation Bollinger bands:

GDX_bolly

GDXJ_bolly

This is panic folks, it's time to begin buying.....

"buy when there's blood in the streets, even if it's your own" -Baron Nathan Rothchild

 

Disclaimer: Always do your own due diligence and talk to a licensed investment advisor before considering any investment. These are opinions, not advice. We seek safe harbour.