Gold prices poised to continue breaking down

The precious metal could keep sliding until a major floor is found again.

By InvestorPlace Jul 16, 2014 1:23PM

Image: Small Stack of gold ingots © Anthony Bradshaw/PhotographerBy James Brumley


It's the proverbial pie in the face for traders who were sure gold was destined for higher highs.


On Monday, gold prices, along with the SPDR Gold Shares (GLD), plunged a stunning 2.3 percent -- the biggest one-day dip of the year -- when Portugal's debt crisis didn't cause the country to sink into the ocean and drag the rest of Europe down with it.


The closing price of gold on Monday was $1,306.70 per ounce, pulling the commodity's price to its lowest level since June 18.


Gold fell further on Tuesday but slightly recovered Wednesday. In morning trading, gold for August delivery was at $1,299.40 an ounce.


The $64,000 question is, of course, what's next for gold prices? Answer: most likely, more downside.



71414 gold futures small Gold Prices Poised to Continue Their Breakdown


It may not be a popular stance. It's a stance the technical clues support, however, now that the market has been reminded gold is not as infallible as it was 2010 and 2011.


Truth be told, had gold futures not fallen quite as far as they did, it's possible this conversation wouldn't be necessary. With that last few cents of daily loss, however, gold prices slipped under a key support line (and a former resistance line) at $1,307. Now that they have, gold futures could slide all the way back to the early-June low of $1,240 before a major floor is found again.


But there's plenty of reason to believe gold will indeed find support around that level. As one can see when zooming out to a longer-term chart of gold, the $1,240 mark was the last springboard the commodity needed to kick-start the rally we saw unfurl in February.


71414 gold futures large Gold Prices Poised to Continue Their Breakdown


Yet, if you take another step back and look at gold from an even greater distance, you have to wonder whether gold prices were going to implode here regardless of the reason. Last week's peak of $1,346 is the fourth node in a relatively straight line tracing all the major highs going back to highs hit in May of 2013.


71414 gold long term resistance Gold Prices Poised to Continue Their Breakdown


Knowing that all charts tend to fall in line with the norm rather than become an exception to the norm, odds are good that traders would have found another good reason to dump gold.


See, more often than we care to admit, the market's action dictates the tone and topics of the news rather than the other way around.


Whatever the reason for the rollover, traders should embrace the reality that gold futures have been more prone to following through on reversal patterns rather than mustering long-term trends of late. And there’s little doubt that Monday’s action has underscored a pullback effort that started to take shape last week.


While there's a good chance we'll see a modest bullish pushback after Monday's drubbing, the damage has been done. Another lower close and/or a close under Monday's close of $1,306.70 could serve as the final nail in the coffin. Either way, gold futures have likely set their sights on $1,240. Should that level fail, the $1,190 mark comes back into view as a floor.


But what about the fundamentals?


To the extent they matter in the short run (which isn't much) to gold prices, they're already reflected on the chart -- the big retreat on Monday suggests near-term traders don't see any bullishness in the fundamentals.


It's unlikely that perception will turn around now that the plunge from gold has rattled its fans and followers.


More from InvestorPlace


As of this writing, James Brumley did not hold a position in any of the aforementioned securities.

Tags: GLD
39Comments
Jul 16, 2014 2:45PM
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Someone recently posted how gold has been this great investment for the past 50 years. 


I posted a reality check with real numbers.  Imagine that in this day and age, real numbers.  Hmm?


I was told I cherry picked my start and end dates.


hmm.  look at the 100 year chart yourself.  Pick ANY, I mean ANY, start date for your analysis in the past 50 years.


1964 gold was about $250.  1976 gold was $450 (Nixon end the gold standard in the 70's) 

So in 50 years your $250 is now worth $1250.  In the same time the DOW went from 750 to 17000, and that EXCLUDES dividends reinvested.  YOu do the math.  Pick your dates!!  Go ahead.


Only if you bought gold in 2000ish at $300ish can you count yourself a winner with gold.


So be brainless and thumbs down the post OR have brain and pick your dates and post them and the results here.

Jul 16, 2014 2:27PM
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"Gold Peaked" in a "Panic Situation":


Be glad it's at $1,300.00 an oz..

Jul 16, 2014 2:41PM
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Holly Mah Dolly.....Who says we are angry??

Jul 16, 2014 1:40PM
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Hmmmm . . . I see Mr. Brumley passed on the opportunity to draw a rising-bottoms trend line based on the December low followed by the higher March low.

It will be very interesting to review this article three months from now.
Jul 16, 2014 3:42PM
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It's a inverse vale market. Abosolutely worthless, grossly overvalued phoney stocks are more highly valued in today's markets than something with actual, intrinsic value: gold. Do you suppose it has anything to do with Fed manipulation to keep the fiat dollar propped up?? Naaaaaaah.
Jul 16, 2014 2:18PM
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This is not good news for the angry, old men who hoard gold and bullets in the name of Jesus.
Jul 16, 2014 2:59PM
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  Tis the season. Normally June being the worst month of the year with July not so hot either, a little pickup in Aug. to the best month of the year in Sept. as traders come back from vacations.

  Lots of things going on around the world that could move gold either way on a moments notice. The list is getting longer.

 Harry Dent sees a devaluing of all things down the road due to the worlds monetary action. Others see inflation for the same reason.

One thing for sure when the $ is dethroned as the worlds reserve currency There will be hell to pay one way or another. I will have a little gold and silver on hand just in case and have a few gold stocks for some profits as well. Well maybe.

Jul 16, 2014 2:31PM
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Hedging against the Obama Dollar since 2009
Jul 16, 2014 2:55PM
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What the left is doing at the border is the lowest of low lifes.

Jul 16, 2014 3:46PM
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AS THE PRICE OF OIL KEEPS SLIPPING, GOLD WILL KEEP
SLIPPING ALSO.

Jul 16, 2014 5:07PM
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   The next recession should hit just before or right after the next presidential election. I may consider re-allocating to gold at that time rather than cashing in my chips. The NRA and the Dooms day prepper crowds will be out in force predicting the end of mankind when Hillary takes office, giving Gold the COO COO bump.
Jul 16, 2014 5:35PM
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uhh... pay attention to the charts... gold FUTURES ... aka no different than stock .. just paper. If you actually look at how much ACTUAL GOLD was sold... nothing... Those that truely beleive all this fiat money can be printed out of thin air is worth more than a physical product... Keep doing what your doing.. those that think gold are a wise investment.. Keep doing what your doing. The chinese the Russians.. they are happy that gold prices aare lowering.. although today it was actually up by $2.00. Mexico proposed going on a silver standard.. China and Russia and India are buying gold and just announced yesterday that the BRICS are going against the IMF and funding their own version of the central bank starting with 500 million. Some may laugh but India and China are half the population of the world. Add in 250 million in Brazil, 144 million in Russia and there is no doubt that countries like Iran and others will follow. What money is worth can change overnight when the demand for a certain currency nosedives.. Ask Argentina
Jul 16, 2014 5:09PM
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gold will keep sliding until its stop sliding.As long as there is too much printed money by fed it can spike with no warning.on the other hand demand is strong in china and india but not usa.also lower prices are producing mine closures
Jul 17, 2014 8:17AM
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Carter Worth, Fast Money, option traders, Forbes have all said Gold has a bull run to 1500 this yr.
Jul 16, 2014 5:41PM
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Yeah, did anyone also notice there wasn't a WORD about the rise in gold and silver from the middle of June until now?  But there's ALWAYS an article when the price of gold and silver DROPS. Looks like MSN has an agenda, in trying to make gold and silver look like a BAD investment.

Got news for you guys always putting gold down as if it was the stock market. MOST people out there buying gold, are buying for the LONG TERM. NOT the short term. Not saying they're right or wrong, but that's what they're buying gold for. The LONG term.

Jul 17, 2014 9:04PM
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Gold, for August delivery, rose 1.3% today, Thursday July 17.  

Quoting from near the end of the the article:  "... the big retreat on Monday suggests near-term traders don't see any bullishness in the fundamentals.  It's unlikely that perception will turn around now that the plunge from gold has rattled its fans and followers."

Sometimes you just have to look (imagine) beyond the fundamentals.  Also, it helps if you don't believe everything you read.
Jul 16, 2014 5:24PM
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I'll buy gold at sub-$900. That's about all it's worth when you take away the 2008-2009 doomsdayer's dumping everything they have into it.
Jul 16, 2014 6:17PM
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  Gold a trade or a investment? Depends on your perspective. Lets take a look. 2004 to 2014 gold up 12%+ annualized, 20 years about even with S&P, 30 years S&P beats the sox off gold.

 The important thing here is to keep an eye on the macro view and add or delete gold accordingly. Some gold, silver and gold stocks can  improve your returns when held at the right times as seen in the last 10 year period. I don't call a 10 year period a trade. Gold stocks are of course more risky with bigger returns and bigger falls and don't always  give you currency collapse protection that gold will. Stay profitable.

Jul 17, 2014 12:36PM
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Active RIA, this may be gone to 2nd. page by the time you get to read...??

What you stated as your thesis, pretty much agrees, with what I mentioned;

Maybe I was not clear with my intentions or intended consequences....??

I attempted to start nothing, only how I feel about investing in or holding Gold and Silver investments, I know that you dabble (or more) in it for yourself or clients...And subscribe to the "conventional investing wisdom" about holding gold/silver in one's portfolios, which I agree with.  ;)


Sedate, yeah probably; Because I don't get as passionate about investing as in the past, and don't like living on the edge of my seat...More into Value Blends, Large Caps and Mid caps paying solid or increasing dividends...With leaning towards speculative Growth in some Commodities and or Energy...Find myself doing less and less trading; 120-135 per year, mostly reinvesting dividends and some reallocations...

My points:

I consider Gold/silver a trading vehicle and taking profits in "appreciating time frames".

I kind of thought you referred to that.?

I'm still contemplating and have invested in Silver positions, but am not very knowledgeable.


Holding Gold "long term" for investing purposes over years or decades, really doesn't hold up well "against overall" small inflation increases and or investments in other Equities. Most are better.

   That's according to what I have read or researched for about 10+ years. 

Ironically,As a "store of value" Gold can provide solace as not to lose everything if the Financial World goes completely to hell, such as back in 2007-2008..Think gold dropped but returned to value?....It helped us, before and after the crisis... We did extremely well in trades.


Gold seemed to have "Cycles" over Decades of time frames, usually affected by Inflation, prices of other Commodities and or World turmoil, along with demand from Foreign Countries...India, China and now the Middle East, and of course the U.S.

Over the years, we have invested in 7-10 miners mostly Gold, Platinum/Palladium/PMs and now some in Silver.. 

Never much on Bullion, hard for me to deal with greedy fkn brokers/dealers...

And Jewelry...

But several years back got rid of all unwanted Gold/Silver Jewelry, Coins or bullion, that we didn't want to keep...(When Gold hit $800 an ounce).


As you attested to, buying Gold on dips or "dollar cost averaging" into it can be a good practice, but at some point in time I recommend "taking profits" (thought you said that too)?

That's the only way we have ever made money on Gold...

And if gold and silver rise again this year further, we will do exactly that...

Gold has been "quite calm" over the last couple years, so I'm hoping for a "breakout" maybe.?

With stocks in their long uptrend, Gold and Silver investments demand have been down.

Jul 16, 2014 4:09PM
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Conventional wisdom and or advice on Financial  matters, say or tout that it is a wise choice that investors, savers, keep a certain or small amount of Commodities, namely Gold or Silver on hand for trading purposes..*** edited; I forgot to mention hedges or inflation guards...

OF course having lead, as some will remind you and corn, wheat, beans etc...Is a good idea too.

 

How much gold/silver to keep in investments varies, from 5%-15%, it's a choice.

Gold really isn't an investment, it's a TRADE, about the only way to make money on it..

Some call it a Store of Value also, but it may not increase in value..??

Only in proportion to what you may trade it for, maybe? and a big maybe.?


For Decades gold and silver seldom "rise above" inflation rates of past years, therefore if you are investing in it, don't expect great returns in the long run.

Or anymore returns than what you may get on other investments.

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