This morning gold has broken key support near $1240 and hopes for a head and shoulders pattern bottom are all but dashed:
Click to enlarge
The white oval is the 'last stand' area of support I highlighted earlier in the week - gold is currently at a level of 'oversold' (green ovals) that has historically coincided with price bottoms. Will this time be different?
Technically speaking the situation is quite dire for gold; there isn't a clear area of support for another $50 lower ($1180). However, according to Mark Hulbert we are now at the lowest sentiment levels since the June 2013 bottom:
And bloggers are jumping all over the downtrodden gold/silver bugs with posts with titles such as "Silver bulls may eventually be right, but they are still idiots" or "The Downside Target in Silver is Below $15" which include quotes such as "One of the scariest looking charts in the world today has to be Silver. The other popular precious metal, Gold, is looking pretty terrible itself" or "Silver could drop all the way back to $6 to $8 and remain in a long-term bull trend". While some of these types of posts make valid points on both technical and fundamental levels, writing about silver falling to $6 is alarmist by any interpretation. These posts also help to highlight the extreme bearish sentiment that is pervasive after such a grueling decline in precious metals.
The fact remains that human beings have an overwhelming tendency to become alarmist and panic near price bottoms. A couple of the most respected gold market observers are also striking a relatively cautionary tone right now.
"Gold will remain under pressure as long as the markets continue to believe that the world, specifically the US, is in full economic recovery and higher interest rates are just around the corner. Personally, I am very suspect. Add to that, the recent "calm" on the geopolitical front (Russia, Ukraine, Iraq, IS, Israel, Hamas) and you have all the reasons to sell gold you need. I'm not sure all of those issues are behind us either. And as long as the US stock markets remain in bubble territory, they will ostensibly continue to provide an alternative to gold."
While I know Giustra is a long term gold bull his comments leave me on the fence about buying gold given some of the short term issues he pointed out. Perhaps an investor will get a cheaper price in two weeks?......And here is Frank Holmes of US Global Investors:
"Gold in Euro terms is looking fantastic. The US economy is carrying the world now and this makes the dollar on a relative basis look better. It's like a beauty contest for the fat people, who has the most fat debt wins... The real issues for the fear trade are negative real interest rates and Europe is in the worst shape to battle deflation. The US is also selling 5 year bonds at negative real interest rates. The G20 are tax collectors and manipulators of interest rates to manage currencies. The other part of gold demand is the love trade, this relates to rising GDP per capita. China has stalled and now India has begun to grow under new leadership."
Not exactly motivating me to go out and buy bullion either!
While I must respect the technical situation in the gold/silver charts and I cannot say that it is prudent to buy precious metals today. I can emphatically state that with sentiment at such depressed levels it is NOT time for investors to sell gold and silver.