Gold's Bearish Reversal

In the Oct. 17 issue of the Institutional View, I highlighted a powerful bullish reversal for gold. It successfully surpassed the $1,940 mark without dropping below $1,900, prompting a Buy signal. However, recent developments in the market have led to a downward revision of gold's outlook.

In the Dec. 29 issue of the Institutional View, I downgraded gold's outlook to Neutral. While gold reached its projected high of $2,075, it faced significant rejection when attempting to break past $2,100 (see chart below). This resulted in a "bearish reversal," characterized by a higher high than the previous day, a lower low than the previous day, and a close below the prior day's low. Additionally, after initially testing support at $1,980, bullion failed to rally and remained below $2,100, with negative momentum divergence.

The weekly chart above displays a 3.5-year rounding base. However, what stands out is the strong reversal (indicated by the yellow arrow) from $2,135 four weeks ago. Despite breaching the $2,100 mark intraday, gold was unable to close above it for the fourth time.

Unfortunately, the performance of gold-mining stocks hasn't provided bullish support either. Both major gold-mining indexes have struggled to stay above their respective 200-day moving averages, signaling a bearish long-term trend.

This current period is crucial for gold. It must hold the support level between $1,950 and $2,000 to have a chance of decisively breaking past $2,100 in the upcoming weeks. However, if it falls below $1,950, we could expect a decline back to at least $1,900 and potentially even down to the mid-$1,800s.