Since the call to short gold (on a short-term basis) on February 4th, the yellow metal has declined from 1,740 to 1,673 as of the time of this writing. My forward momentum indicator suggests that short-term weakness in GLD shares is likely to persist into mid-month (see the chart below). Weekly momentum (not pictured) is still improving, but this support looks likely to reverse course by mid-May. Thus, the current setup appears consistent with the idea that only a modest short-term rally materializes after the current bout of weakness, followed by an intermediate-term correction by around the middle of April.
This more pessimistic longer-term view appears inline with the perspective of Tom McClellan (and Bob Prechter too, for that matter). McClellan is looking for the December low (148.27) to ultimately give way before weakness in the yellow metal subsides. And as usual, Prechter’s perspective seems to be that a large-degree turning point is upon us.Seasonality also hints at subpar returns for gold in March. Consider that since 1982, the gold’s return in during the third month has been negative in over 62% of all instances. Thus there is a strong precedent for expecting continued weakness.
Various measures of sentiment for gold imply that attitudes are more neutral than not, so no meaningful signal can be derived from this data.
Cutting to the chase, the short-term move lower for gold seems to be nearing completion. While there is a strengthening case to be made that recent weakness is merely the opening salvo of a larger degree decline, I perceive holding short gold exposure after March 14th to be a risky proposition (if only over the near-term). As such, my inclination would be to look to close out positions over the course of the next week or so, with the hope that if a (temporary) short-term rally does follow the current leg down, we will have the prescience to reload our short exposures at better entry points.
Early in my career an experienced broker told me that, “No one ever went broke taking a profit”. I consider that admonition to be sage advice, however, momentum suggests that there might yet be time left on the shot clock for the falling gold prices trade (we are certainly close to the turning of the tide, but, in my estimation, we are not quite there yet).