The price of Gold is crushed but the bear market seems to come to an end.

The price of gold crashed on Monday the 15th of April to levels below 1,340 USD per ounce. This current bear market started on October the 4th 2012 when the gold price closed at its peak of 1,791.8 USD per ounce. Today and as the gold price reached 1,320 USD it seems this bear market moves too fast lately. Using TCI analysis we are going to investigate if it is time for a bear market rally.

TRADING SIGNAL MARKET	CURRENT PRICE	TARGET	STOP LOSS
	$1,350 per ounce (4/15/2013)	$1.459 $1.419	Stop-Loss: $1.319 per ounce

But first let’s evaluate the results of our previous trading signal on Dow Jones Industrial (April 22, 2013)

The Previous TCI Trading Signal on Dow Jones Has Been Proved Accurate

Our previous signal on Dow Jones Industrial has forecasted a bull market that will last until the 5th of April 2013 / 9 April 2013. Actually, the bull market has lasted 3 more days than we expected. As concerns the target we have placed (in points), that was met with considerable precision. We have placed a target price for Dow Jones Industrial at 14,850 points while Dow Industrial had a high close at 14,865.14 and an intraday high at 14,887.51, both on the 11th of April 2013.

Gold from a Fundamental Point of View

There are two fundamental reasons behind the recent drop in gold. First, it is the weak economic data derived from the Chinese Economy. And note that China drives the global demand for gold during the past decade (jewelry and investment gold). The Chinese economic weakness caused future demand-drop-fears in other markets too, especially as concerns other metals and energy. But there is another important development regarding the recent drop in the price of gold. The intention of the Cypriot government to sell gold (worth $500 million) in order to improve its public debt ratios created the concern that more troubled economies will do the same in the future. As concerns, the South of Europe, Italy, Spain, and Portugal are holding great gold reserves.

Here are the Countries with the greatest Gold Reserves

Other precious metals like silver and platinum and many mining shares from around the world were hit also in the past couple of days.

What TCI suggests about the Current Course of Gold

In order to evaluate the upcoming course of the gold price we are going to use the TCI+ model, The difference between TCI and TCI+ is that TCI+ takes into consideration statistical data from multiple currencies and not only from one single currency (US Dollar). The TCI+ data table below is based on the price of gold as measured in 5 different currencies (USD, EUR, CHF, GBP, and JPY).

In the upper area of the following chart, we can see a Line Chart of the price of gold (USD) during the past 20 years (from January 1983 to April 2013). The red line is the moving average of 180 days which is setting up the master trend for gold. The moving average of 180 days is found today at about $1,688. In the lower area of the chart, we can see the respective indications of TCI+ throughout the past 2 decades.

Chart: The Price of Gold 1983-2013 and TCI+ Indications

If we focus on the bear markets of the past 20 years, we may conclude that the levels of TCI+ below -15% are considered high oversold levels. These TCI+ oversold levels have been followed in the past by great gold price rallies. Note that on the 15th of April 2013, TCI+ was found at -14.0% and that means that the bear market is probably coming to an end.

TCI+ Data Table

In the following table we may see the price of gold during April 2013 and the respective indications of TCI+:

Given the TCI+ analysis, it seems that the purchase of gold in the levels of $1,320 to $1,350 per ounce can be proven really profitable for trading. The first target is $1,419. The second target is $1,459.

 

◘ Giorgos Protonotarios, Financial Analyst