(This is an excerpt from the April 27, 2012 blog for Decision Point subscribers.)
In January gold appeared to have completed a correction when it broke above the declining tops line of a fairly steep correction, but the pullback after the breakout was far more trying than we had expected.
On the weekly chart below we can see that the pullback has gone all the way down to a long-term rising trend line, pushing it as much as possible without causing serious technical damage. The weekly PMO is falling, a bearish condition, and we need persistently positive price movement to turn the PMO back up. A positive aspect is that the 17-EMA has remained above the 43-EMA, meaning that a long-term buy signal is still in effect.
The daily line chart below shows that the 20-EMA is below the 50-EMA, which has us in a market posture of neutral. In the very short-term it looks as if price may be in the process of turning up — it has broken above a short-term declining tops line — and the PMO has moved up through its EMA.
Another positive sign is the low level of assets and cumulative cash flow in the Rydex Precious Metals fund. Assets have been beaten down to a level that shows a complete lack of enthusiasm for gold stocks. Based upon price performance, this is completely appropriate, but deeply bearish sentiment levels should have us looking for a price bottom.
Conclusion: With prices seeming to curl up within a long-term notch formed by important trend lines (weekly chart), apparent short-term bottom formation, and depressed sentiment, conditions look favorable for another up leg in gold prices. However, if the long-term support is decisively broken, we would have to assume that the current correction will be extended for quite some time.
