Over the past couple of weeks I have been reading some popular financial blogs and publications and the common theme and front pages news is the
price of gold. You can not find a place online that is not talking about how people are selling their gold dental crowns or selling their children for the privilege of buying some of the precious yellow metal. Everyone and their mother, mother's cousins, mother's brother is buying gold and loading up in preparation for a monetary apocalypse. I have heard so many conflicting opinions from the "Experts" on where the price of gold should be, or where it is going that it will make your head spin. Some financial analysts say $10,000 per ounce, some say $5000 per ounce. As far as I am concerned no one really knows in which direction most of the time the market will move, let alone how far and what exact price the commodity will reach. If you have read anything I have posted on this blog over the past months, you will know that I like to see what the market is telling me on the screen in front of me. In my eyes the charts are the only somewhat reliable indicator of future market bias. In the real world nothing is 100%, but every once in a while if you are observant and patient you might get a clue. If you pull up a daily or weekly chart of gold futures contract or XAU/USD forex pair the uptrend has been steady and the slope of the chart is getting stepper and steeper. Most investors and traders would only see long opportunities and to even suggest a short bias would be considered laughable. I am about to do just that. If you notice on the screenshot bellow, the monthly chart for gold is showing a very large bearish engulfing bar formation.
Since gold started it's stratospheric rise in 2008, there has not been a formation of this magnitude and size. In my experience, before a long term trend is over or a reversal takes place, a parabolic rise in price occurs after which a very sharp downward swing takes place. This is the same dynamic that signaled the crash of the Nasdaq from it's highs at 5000. This very similar price action has played out in gold futures during September and it may be a sign of things to come. I am not stating with a thousand percent certainty that gold is going to collapse, no one knows for sure. However there is an eerie resemblance to what happened right before the Nasdaq bubble popped. If you are a long term investor you should take note of this development, I don't care if you think gold is going to $20,000 per ounce. I would say to wait for a breaking of the low of that bar formation. Always wait for confirmation of directional bias before hopping on the bandwagon. Happy Trading!
