Since peaking at $450 last November, spot gold has continued to make lower highs and lower lows, most recently probing near the $410 level. Many are asking how much lower gold will have to decline before support is forthcoming. But if the latest news headlines are any guide, a near-term bottom is very close.
The technical picture for gold also suggests that the metal is about to encounter a pivotal benchmark that has historically been a strong support. This benchmark is one of the most important trend/momentum indicators for gold, as well as a pivotal intermediate-term support/resistance, namely the 90-week moving average.
This particular average has been very pivotal for the spot gold price over the past ten years and especially the past four years of gold's bull market, as each time the gold price has come into contact with the 90-week MA during pullbacks or declines it has produced a short-term bottom. While this isn't always a pinpoint precision indicator, it is nonetheless a powerful indication of the strength of gold's prevailing trend. The point is that a test of the 90-week MA area has usually resulted in at least a near-term market low followed by an oversold technical rally.
Notice how the weekly stochastics indicator in the above chart is at an oversold reading, approximately as low as the previous three 90-week MA tests (in November/December 2001, in April 2003, and again in May 2004). Historically, a test of the 90-week MA intersection area in the chart has been accompanied by a very oversold stochastics reading before the next reversal gets underway. But gold's weekly stochastics isn't quite where it should be after reaching its recent oversold reading and hasn't turned up yet. This suggests the bottoming process we've witness of late isn't quite over yet, but we are getting close.
A word about the U.S. dollar index is in order. In our previous look at this benchmark a few weeks ago we noted that the recent rash of super-bearish news media articles and analyst commentary on the dollar was indicative of a short-term low, as was the case. The parabolic bowl highlighted in a previous commentary on the dollar chart has guided the currency to higher levels in recent weeks, the most recent being its high year-to-date at 85.20.
From this point, however, things look to get a bit rocky for the dollar as overhead resistance should become apparent within the next few days. The dollar's 30-week moving average intersects at just under the 86.00 level and the 60-week MA intersects just above it at the 87.00 area. This will most likely prove to be an insurmountable obstacle for the dollar to overcome right now.
Obviously, this would bode well for gold in the near-term as it would allow the yellow metal to find support very soon.