On the heels of the recent plunge in the gold and silver markets, the piece below is very surprising look at the gold market and what to expect next.
From Jason Goepfert at SentimenTrader: “Gold is consolidating near its recent lows. The metal sunk to a multi-month low on October 6 and has been locked in an exceptionally tight range since then. Technicians consider this a negative “bear flag” type of formation, but looking at other times gold fell to a 3-month low and then coiled into an extremely tight range, it actually rallied over the next month every time but once…
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Gold consolidates near lows
Similar consolidations have actually led to higher prices over the next several weeks
Gold collapsed to a multi-month low on October 6 and hasn’t really done anywhere since then. Its range over the past 8 days has sunk to below 0.75%, extremely tight when compared to similar time frames in its history.
Technicians would typically consider this bearish behavior, a “bear flag” or other formation that basically just means that sellers are resting before continuing the recent trend.
Gold’s range has collapsed in the past week and a half
Let’s go back to 1975 and look for similar situations. We’ll look for any time that gold fell to a 3-month low at some point over the past 8 days and its maximum and minimum close were within 0.75% of each other during those past 8 days. There were 12 occurrences, and gold’s returns going forward are shown below.
The results were surprisingly bullish. This is supposed to be a bearish pattern, and in the very short-term it was. But even a week later, gold rallied twice as often as it declined. It kept getting better over the next few weeks, and by a month later, gold was higher 11 out of the 12 times, and with a 3-to-1 reward-to-risk ratio. What’s also notable is that almost every one of the dates was during the bear market in the 80s and 90s.
Based on this, the recent consolidation doesn’t look like a good reason in and of itself to be negative on gold over the next few weeks.”
The charts and commentary above are from SentimenTrader. To try a free 14-day trial of the internationally acclaimed work that Jason Goepfert produces at SentimenTrader simply CLICK HERE.
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