Friday, June 21, 2013

Gold lost its glitter!

When Gold broke above its intermediate downtrend line (RR) in September 2012, gold bugs everywhere cheered. They expected Gold to revisit its high of USD1900 recorded in August 2011. See Chart 1.

Chart 1: Gold's 3-year chart as at June 20, 2013 (Source: Stockcharts)

Alas, Gold failed to come close to the 2011 high. It managed to chalk up a high of only USD1800. From then only, Gold slid steadily (see Chart 2). It broke support after support and yet, the gold bugs kept their faith in this safe haven asset. That was before April this year. In April, Gold broke below the strong horizontal support of USD1530 and hit an intra-day low of 1330. 

Chart 2: Gold's daily chart as at June 20, 2013 (Source: Stockcharts)

The first break of the important technical support should put fear into the heart of investors. However, some investors or speculators were not deterred. They plunged in and loaded up on the glittering stuff. In China, there were scenes of large crowd lining up to buy gold.

Picture: 10,000 people lining up to buy gold in China (Source:

If they have seen the next chart, I don't think the crowd would have lined up to buy Gold. Gold is a commodity that shot up in times of trouble or financial distress. And, when the troubling times are over, it would drop back for a long, long time. Are we about to see the repeat of this.

Chart 2: Gold's monthly chart from 1960 to 2010 (Source:

Yesterday, Gold broke another strong horizontal support at USD1310. The Great Gold Rally of 2013 is likely to be over!


Anonymous said...

Hi Alex, the price of gold has fallen sharply. So have the prices of all other commodities, from copper to soybean. But the price of oil has remained very high and virtually unchanged. Can't think of any logical or good reason for this. What is your take or analysis on price of oil?

Alex Lu said...

Hi zhouyu44

You have rightly pointed out the strength of crude oil. If you plot the chart of WTIC to any commodity (precious metal- gold, basic metal-copper or soft commodities- wheat), you would notice that the ratio started rising up in November or December 2012.

The strength of WTIC is surprising given the new source of crude oil (from shale) has been pretty substantial. Imagine without this source of oil, WTIC might have shot through the roof.

One possible reason for this is the heightened geopolitical risk due to simmering turmoil in the Middle East.