Gold fell out of bed this morning - how low will it go? Three short-term alternatives

Readers here know that we've been expecting the pullback in gold, and that we have two alternatives - one's a relatively mild "wave 2" pullback that may complete at what we call a C=A level, or perhaps a bit deeper. The other being a more severe pullback that would re-test the October 2008 lows. Using GLD to measure a wave 2 pullback, a C=A level would place it at 83.77 - that would be a slightly deeper test of the 200 day simple moving average (dsma). You can see where that would be, on the chart below. If I'm right, that would put $GOLD about at the 850 line that we've been viewing as a pivot for a long time. If it rebounds smartly from a level like that then it might complete a 2nd wave pullback per Tony Caldaro's OEW count. But be careful. A 2nd wave could also go lower (such as to the 1.382 extension of the initial drop from 98.99 in GLD, calculating as $79.56); and, this might be part of a deeper C wave down that would test the 680 level in gold. If it's only a 2nd wave pullback, I could see it doing either - either probing down to that $79.56 level in GLD, or respecting the 850 pivot in $GOLD and the 200 dsma to allow the C=A pullback idea to be enough. How you trade this - or not - clearly depends on your time frame, style, and trading vehicle.*

Those of you who have been following our analysis pulling together the big picture in gold, the dollar and currencies know that we're focusing particularly on the end-of-May time frame. If gold should choose to drop under its 200 dsma for an extended drop, then gold bulls can take heart that a decline that lasts for the next 7 or 8 weeks may present a wonderful buying opportunity. Meantime, we'll keep an eye on this to size up the probabilities. For now, the volumes on the drop have been relatively small so it still looks orderly. If it loses moving average and 850-pivot support on higher volumes, that will clue us in that gold may need a deeper pullback before the next huge rally.


*Not a recommendation to buy or sell any security or investment.