Gold's break under the June lows and why gold bugs - and all financial market participants - should care

Why should we care that gold has moved under the lows of the month of June? I described in a prior post a couple of days ago here that this decline not only has lost trendline support on my daily chart, but is beginning to look too big and sprawling to be a wave 2 pullback if gold is really going to put in a nice wave 3 up to new highs. Now, when you look at my weekly chart of gold (second chart below), you can see that it does remain within the uptrend channel lines on that, so perhaps there's hope that gold turns bullish again. But just in case, I've made some additional annotations and markings onto my monthly chart (at bottom, below). What message is gold trying to send us? It's a classic harbinger of inflation, and the opposite of a strong dollar. If the market sensed that the dollar is really going to tank into the abyss, then why should gold (in dollar-denominated terms as on these charts of $GOLD (continuous contract), be looking this weak? The answer may be that the danger continues to be deflation, which shouldn't be good for the price either of gold or of equities (or commodities for that matter).

It looks like right now the price of $913 is important as a pivot or resistance level, since it's the level that should have been support from the June lows but was broken. I've already mentioned the pivot level around $850, and you can see from the trendlines on my daily and weekly charts some areas to watch. From an Elliott Wave perspective, the danger (well, for gold bugs anyway) is that gold is embarking on a wave 3 of 3 down (or a wave 3 of "C") - if that is correct, then a decline should be strong and persistent. If you really want to be long gold, it would seem smart to step aside and let it prove differently by going above the swing high of late June/early July (the level that looks like a second wave in EW terms, so the bearish case wouldn't allow gold to go above that level). Check out the DMI-ADX indicator in the bottom window, on the daily chart it's already registered to the negative side, and it looks about to do the same thing on the weekly chart. That also looks confirming for the bearish view of gold.

I've studied the gold chart a great deal over the past year, and from an Elliott Wave perspective the possibility of a large wave down as I'm describing is very realistic. I've reviewed some cycles analyses that suggest it's possible in those terms, as well. So not only should gold market investors and traders take note of this. Since it signals a deflationary wave, investors and traders in other markets should be sure to consider what effects deflationary pressures would have in other financial markets too.