Gold’s Dead Cat Bounce

About a month ago I wrote on gold’s next likely move. Basically, I said that we’d see a short-term bounce off support at $1,350 before the precious metal rolled over and fell further.

And that’s pretty much what happened.

A little Fibonacci analysis shows that, despite their best efforts, gold bugs seem to be out of options.

Here’s a daily chart of gold futures over the last year…

See larger image

After selling off 15% in just two days, I knew there’d be pause in the carnrnage. Nothing moves in a straight line.

I saw three likely scenarios, which I laid out on April 19. All called for a bounce higher in gold prices, differences being only in the degree to which gold would retrace its jaw-dropping fall. I was expecting, at the very least, a 38.2% retracement to $1,425. That happened easily.

The next likely upside target was the 61.8% Fibonacci retracement (blue arrow). And we hit that target like a nail on the head. After hitting $1,475 – the target I mentioned on April 19 – gold prices formed a rounded top before falling victim to another bout of selling.

That gold never made it back up to $1,500 – $1,550, my highest upside target, is an important sign that gold bugs are weak!

Watch for further selling over the next few weeks. I’m not ruling out a retest of the $1,400 level, as gold buyers make another run at the bears. Yet, a break below $1,350 should send gold all the way down to $1,225 in the near-term.

Don’t buy into dips… you’d be fighting the trend. Sell into rallies instead.

Adam O’Dell

Using his perfect blend of technical and fundamental analysis, Adam uncovers investment opportunities that return the maximum profit with minimum risk.