Gold Price Forecast: The Million Dollar Question - Where Is Gold’s Bottom?

Without a doubt, everyone is wondering (and should be): where is the bottom in gold and what’s going to happen to the yellow metal after it came close to touching $1700 last week?

With February’s monthly close now in, the MACD indicator is flashing a clear sell-signal. If you analyze the chart below (at the bottom right), you can see that the MACD line has crossed the signal line from above – a development that preceded significant drawdowns in 2008 and 2011.

Based on gold’s previous performance after the major sell signals from the MACD indicator, one can now expect gold to bottom in the ~$1,200 to ~1,350 range. Given the price moves that we witnessed in 1988, 2008 and 2011, historical precedent implies gold forming a bottom in this range. However, due to the competing impact of several different variables, it’s possible that the yellow metal could receive the key support at a higher level.

For more context, I wrote previously:

Only a shade below the 2011 high, today’s MACD reading is still the second-highest reading in the last 40 years. More importantly though, if you analyze the chart below (the red arrows at the bottom), the last four times the black line cut through the red line from above, a significant drawdown occurred.

Also ominous is that the magnitude of the drawdowns in price tend to coincide with the magnitude of the preceding upswings in MACD. And with today’s reading only surpassed by 2011, a climactic move to the $1,250/$1,450 range isn’t out of the question for gold. The above is based on how low gold had previously declined after similarly important sell signal from the MACD

Now, February is not over yet, so one might say that it’s too early to consider the sell signal that’s based on monthly closing prices, but it seems that given the level that the MACD had previously reached and the shape of the top in the black line, it makes the situation so similar to 2011/2012 that the sell signal itself is just a cherry on the bearish analytical cake.

Considering the reliability of the MACD indicator as a sell signal for major declines, the reading also implies that gold’s downtrend could last longer and be more severe than originally thought. As a result, $1,500 remains the most likely outcome, with $1,350 still in the cards.

Since we already have the February closing price, the sell signal from the MACD indicator is now clear.

As another piece of valuable evidence, in 2011, gold’s monthly close clearly invalidated the breakout above its previous high.

And today? Well, it’s the exact same story.

If you analyze the top-right area of the chart below, you can see that gold closed the month well below its initial breakout (the gray horizontal line).

And as it relates to 2008, the yellow metal broke below its rising support line before suffering a final plunge. Today, gold continues to hold this trendline. However, if it dips below ~$1,700 (and breaches the rising support line), it could rally back to the ~$1,750 to ~1,800 range before continuing its medium-term downtrend.

Keep in mind though: if the 2008 analogue is to deliver a second act, the S&P 500 will need to reprise its former role and decline substantially.

Summary

It wouldn’t surprise anyone if a short correction occurred at this stage, but for the medium-term downtrend, gold is still on track. 

The medium-term top in the precious metals is in and the following weeks are not likely to be pleasant times for anyone who jumps on the bullish bandwagon just because prices moved higher in the previous months or based on some forum posts. Tread carefully.

What’s profitable is rarely the thing that feels good initially. As silver often moves in close relation to the yellow metal, forecasting gold’s rally without a bigger decline first is thus likely to be misleading. Silver is likely to slide as well. The times when gold is continuously trading well above the 2011 highs will come, but they are unlikely to be seen without being preceded by a sharp drop first.

Thank you for reading our free analysis today. Please note that it is just a small fraction of today’s all-encompassing Gold & Silver Trading Alert. The latter includes multiple premium details such as the outline of our trading strategy as gold moves lower.

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Przemyslaw Radomski, CFA
Founder, Editor-in-chief
Sunshine Profits - Effective Investments through Diligence and Care

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All essays, research and information found above represent analyses and opinions of Przemyslaw Radomski, CFA and Sunshine Profits' associates only. As such, it may prove wrong and be subject to change without notice. Opinions and analyses are based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are deemed to be accurate, Przemyslaw Radomski, CFA and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Radomski is not a Registered Securities Advisor. By reading Przemyslaw Radomski's, CFA reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Przemyslaw Radomski, CFA, Sunshine Profits' employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.