Big Drops Do Not Mark Final Gold Bottoms
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Gold saw a huge 1-day drop on Tuesday, Oct. 4, triggering all sorts of rumors about a big fund having to liquidate, or maybe it was worries about ECB tapering. Whatever the cause eventually turns out to have been, the size of that drop by itself conveys important information.
The key: Big drops over 1 or 2 days typically do not mark the final low for a price decline in gold.
We can see that in this week’s chart, which uses a 2-day rate of change for closing gold futures prices. Readings below -2% almost never coincide with the final low for a down move, especially if gold prices are in a downtrend.
Every once in a while you may see an exception to this, especially if gold is in an uptrend and gets a sudden one-day scare. That set of circumstances can shake out all of the weak hands, and allow gold to resume its uptrend.
That is not the situation we see now, with gold prices trending downward since the end of July 2016, and now accelerating in that decline. This big down move says that we are at the very least several days away from seeing an important final low to this decline.
Editor, The McClellan Market Report
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