Where are you going, Mr Gold?

Gold seemed to be on a downtrend nowadays. It didnt seem like this two years back... The important question: Will precious metal rebound?

To answer this question, one has to understand the precious metals market..which consists of gold, silver, platinum and palladium. The Exchange traded products linked to them are: gold - gld and Silver- slv, Platinum - pplt, Palladium - pall. With the exception of platinum and palladium, gold and silver have fallen at least 5% thus far in the year.

An interesting question: has the enthusiasm for investing in precious metals faded?

According to the latest Kitco News Gold Survey, an overwhelmingly 78.57% are still bullish on gold compared to just 14.29% that are bearish. Similarly, Bloomberg's Commodity Sentiment Gold Bullish readings have doubled a low of 29.03 in late February to 64.

This seemed like well and good for gold enthusiast. However this doesnt bode well for the future of gold ...cause it's precisely when the majority of the market participants are in agreement about the direction of an investment, that it typically means it will usher in the completely opposite outcome.

"Despite a rising stock market, the Market Vectors Gold Miners (GDX - News) has lagged both the broader U.S. stock market along with the SPDR Gold Shares (GLD) by a very significant margin. The current downtrend for mining stocks is still in place. Furthermore, a double digit slide for gold would likely translate into a 20%+ loss in mining stocks. This scenario offers some big upside potential for bears. Buy the Direxion Daily Gold Miners Bear 3x Shares (DUST - News) at current levels."  Another red flag is a lack of gold volatility (^GVZ), which has been a virtual replica of depressed stock market volatility (^VIX). Missing volatility is a tell-tale sign of complacence.
(Public Source)

What price levels do gold and silver need to hold before a breakdown occurs? Well, for this, refer to the graph below:

For now, it remains short term bearish.. though an upside is still theoretically possible.
Ist Apr

Haha.. even as this was written a few days ago: gold started its downtrend 2 days after this article was written..signalling the trend downwards beginning to form. And gold has gone from $1576 to $1550 signalling more to come.

3rd Apr