Fitzpatrick’s Team: While we remain structurally bullish gold in the medium-term, there is no doubt that the price action of recent days has to be of concern.  While we do not believe this is a ‘trend change,’ we need to respect the breaks seen and what they could suggest near-term.

There is a danger that even lower levels on gold than those seen in recent days could materialize in the days/weeks ahead.

Gold has clearly broken the (following): 

*Base of the “consolidation” that had been in place since Sept 2011. 

*Base of the channel in place since 2001. 

*The 200 week moving average. 

While we do not yet know if it will close the week below the 200 week moving average ($1,435), it is the first time it has traded below that support since January 2002.  In addition, the present break could be construed as a double-top with the break below $1,526.  The target for that break would be for a move towards $1,260.  Such a move would equate to a high to low drop of about just over 34% (or $1,260)....

Continue reading the Tom Fitzpatrick team piece below...


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“We have only once seen a drop of that magnitude in gold since the turn off the 1999-2001 lows.  That was between March and October 2008 when gold fell just over 34%.  Additional long term support (not shown on the chart below) is met at the 55 month moving average at $1,351.

Apart from the major turn in 1980 that saw gold fall from around $850 to a low of $253 in August 1999, the largest correction we have seen was in the 1970-1980 bull market.  Between 1975 and 1976 as the equity market bounced sharply, gold had a high to low fall of about 44% before multiplying over 8 times in the following 3 1/2 years.

That period in 1976 was also the only period in that bull market (outside the turn after the 1980 peak) that saw gold retrace below its 55 month moving average.  It traded 14% below that average in August 1976.  14% below the 55 month moving average today stands at $1,162, while a 44% fall off the peak would equate to $1,075.

So where does that leave us?  During the correction in the 1970’s gold remained under pressure while the Equity market rally continued.  However, once the Equity market corrected lower in 1976-1978, gold re-established its uptrend.  At this point we are not necessarily convinced that the equity market continues to power higher from here, so a correction lower of that magnitude in gold does not look to be the base case scenario.

We are more focused on the fact that the double-top suggests a correction more in line with that seen in 2008 with its double-top targeting an almost identical move of just over 34% high-to-low.  As a consequence, while we remain below the $1,520-$1,526 area, a move towards $1,260 cannot be ruled out.  That potential would increase if we saw a weekly close below the 200 week moving average at $1,435.

In addition it is worth noting that we are seeing a number of markets (as well as economic data) follow a path very similar to this period in 2012.  That period saw a sharp fall in gold from late February into the year’s low on May 16th, 2012.  That became a platform for those losses off the 2012 high to be regained by October that year.

So while we remain below the important pivots mentioned above, the answer to our title seems to be ... somewhere close to $1,260 by May (if not earlier) looks to be the “buy zone.”

King World News note - The key takeaway from this piece is what Fitzpatrick’s team noted, after gold ended its mid-cycle correction in the 1970s, the price of gold went up more than a staggering 8 times in price in just 3 1/2 years.  As Jesses Livermore said, “Be right and sit tight.”

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