Short-, Medium- and Long Term Technicals For Gold & Silver – Update

Gold just dropped 200$ in 2 days (OMG!), and reached a low of 1320$.

Now before reading any further, I want you to read my analysis of May 16th 2012 titled “Short-, medium- & long term technicals for Gold & Silver”:
http://profitimes.com/free-articles/short-medium-long-term-technicals-for-gold-silver/

The following is a brief excerpt:

The BPGDM index from stockcharts, which shows the % of mining stocks that have a BUY signal on the Point&Figure chart, is very depressed at 10.71% at the moment. In late 2008, this index reached 0% for a very short time. Funny to see that that time, the mining stocks had set a higher low. The HUI index has now dropped below the 50% Fibonacci Retracement level from the bottom of 2008 to the top of 2011, so the next target would be the 38.20% level, which comes in slightly below 350. My expectations are that we might get close to this level over the next couple of days, followed by a very sharp rebound (possibly as high as 450, which is the 61.80% level). What happens then is still unknown, but as I pointed out, the severe underperformance of the HUI stocks to Gold is very similar to 2008, which means that the decline might not be over yet, even though a sharp bounce is overdue now with the extreme bearishness…

Well, as we can see in the following chart, that point was indeed a bottom, and the HUI rallied very sharply (even more than I expected), to 525. What we can also see, is that the pattern has held up quite well, although the time frame was a bit longer than anticipated:

We can also see that for the first time since 2008, the Bullish Percent Index is at ZERO, meaning that NONE of the gold stocks is showing a Buy signal on the Point&Figure chart.
This could be an opportunity for a contrarian investor/speculator: if everything looks as bad as it possibly can, there is no-one willing to buy and everybody wants to sell. At some point everybody that must get out is out, and there will be no sellers left.
That sets the fundamentals for a sharp rally.

A bit further down in the article, I also wrote about the extreme overbought conditions of both Gold and Silver on Quarterly and Yearly basis. Well, with the current drop, those extremes have faded.
In fact, Gold landed exactly at the middle bollinger band (so far), so as long as 1321$ holds, this could be a the ideal situation for a nice rebound. This quarter has just started, so there’s plenty of time, to either drop below this level, or to reverse sharply higher.

In case we get a strong reversal, chances are high that Gold will rise dramatically over the next couple of years.
However, should a strong reversal not take place, and price drops below 1321$ (and closes below there at the end of this Q), then I think that Gold has much further downside (potentially as low as 900-1000$). That might either mean that the Gold Bull Market has run its course, or that we are seeing a similar situation as in 1974-1976, when gold first dropped 40%, before exploding higher (from about 100$ to 850$ per ounce).

Talking about the 70′s, while a bit off-topic: Here’s what happened to the Dow Jones in 1972-1975

Now here’s what happened to the Dow from 2010-today:

If this pattern holds, fasten your seatbelts, because the Dow might be ready to drop 50% or more!

Gold stocks are extremely depressed right now, and to give you an example of how depressed, here is a daily chart of ABX (Barrick Gold):

What this chart shows, is that price is currently trading 44.65% below its 200EMA, 39.04% below its 100EMA, 33,69% below its 50EMA and 26.60% below its 20EMA.
When we compare that with the bottom of 2008, we had values of 47.02%, 47.42%, 40.98% and 30.83% respectively.
So the current situation for ABX (and many other Gold mining stocks) looks similar to the bottom of 2008.

This month alone, ABX lost over 35% of its value. That’s the Biggest gold producer in the world!

When we look at the weekly chart, we see something that doesn’t happen too often: we have a Bollinger band Crash trade, meaning that the entire candle is outside the bollinger bands. This is often a sign of capitulation. Of course it could go lower, but I think the downside risk for ABX (and other Gold stocks) seems to be limited (SHORT TERM), and rather think that a strong rebound (at least 20-30%?) is in the cards. It depends when it will take place, but price should at least move back to the lower bollinger band at some point, either in April or in May.

We can also see in the chart below that price is also substantially below its weekly EMA’s (200, 100, 50 and 20 WEMA respectively), just like in 2008.

http://profitimes.com/free-articles/short-medium-and-long-term-technicals-for-gold-silver-update/