Gold - A potential bearish scenario

FX:XAUUSD   Gold Spot / U.S. Dollar
"Bottoms in the investment world don´t end with four-year lows; they end with 10- or 15-year lows." - Jim Rogers            

"The one who wants to protect his fortune doesn´t believe in anything but plans for everything." - Amschel Mayer Rothschild

Although its way too early for confirmation I thought it´s time to lay out a theoretical bearish scenario to make sure we are prepared for everything. In this case gold             would move back towards $1,025 and make new lows..!!! But let me explain:
The 330$ rally since December 2015 has seen an important high at $1,262, an important low at $1,200 and another important high at $1,375. The weakness in gold             since last week´s sell off is obvious. Should gold             continue to slide lower it will very likely find a bottom somewhere around $1,210 - $1,220 followed by a sharp recovery towards $1,295 - $1,300. In that case we would have most of the ingredients for a bearish head and shoulder pattern if gold             fails at the strong resistance around $1,300. If gold             then comes all the way back down to the $1,200 neckline the pattern will get more and more obvious. A break through $1,200 finally will confirm the pattern and activate a price target at $1,025 based on the pattern height of $175.
What would increase the odds for this theoretical bearish scenario?
- Gold             below $1,220 would shift the bigger picture (see Midas Touch Model)
- Gold             continues the current sell off down to the neckline around $1,200
- Gold             does not move back above $1,300 within the next 1-3 months
- Gold             is breaking through the neckline at $1,200 (pattern confirmation)
- Gold             is moving below $1,170 (= retracement larger than 61.8% of $330)
How can we make money in this scenario?
1. Buy gold             around $1,200 - $1,220 and sell into the recovery around $1,295
2. Sell gold             short around $1,295 with a stopp above $1,325 and hold this short-position until $1,025...
As already stated this is a theoretical scenario and should be understood as a backup plan.
Comment: Still valid :-)
But one thing that doesn't fit is the volume of the potential right shoulder.. it should be lower than that of the head and of left shoulder. .
Instead we saw the highest volume in CME Gold history.....
A bounce towards $1,275 should start around $1,210 next week... but once we break $1,200 we need to return to this H&S scenario
Thanks for the chart Midas.
May I know what makes it bearish next year while the other experts says that it will be bullish after the US election ?
Here it is according to top forecaster http://bloom.bg/2e3WgOF
+1 Reply
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The bearish scenario is the backup plan in case gold gets deeper into trouble... so far the bullish view is still the main scenario
+1 Reply
albertwt MidasTouchConsulting
Thanks Florian for the sharing.
you´re welcome :-) sign up for my free newsletter please..
albertwt MidasTouchConsulting
I agree with your chart above, so far I believe Gold is being manipulated by the big bankers as described in this article: http://www.gold-eagle.com/article/gold-manipulators-will-be-punished hence the price is now lower.
I think the next three month will bring more clarity.. Gold above $1325 increases the "new bull market" thesis while gold below $1,200 and especially below $1,170 will shift the odds to "just a bear market rally".. in-between we have to take what the market is giving us..
f_sirin MidasTouchConsulting
@MidasTouchConsulting, Thanks for the chart. It looks still updated sooner than expected. What would be under 1170 the next stop estimated ? Thanks again.
@f_sirin, Looks like we finally got the reversal today.. even though still very shallow...!!! Finally!! Gold should start a rally or at least a sizable bounce... very oversold, lots of divergences, sentiment depressive and CoT probably cleaned..
@f_sirin, Problem with the HS pattern is the volume. it doesn't fit this technical pattern... but neckline $1,200 has been broken.. let´s see
f_sirin MidasTouchConsulting
@MidasTouchConsulting, Thanks a lot following.
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