Executive Summary

• Sentiment measurement is proving to be an unreliable indicator
• Classic technical analysis is inconclusive but hints there is still weakness that needs to be flushed from the system
• The current era is feeling like 2007/2008 – gold could rebound strongly this year if enough weak economic data makes it out into the public
• The factors to look for that will indicate a price reversal is imminent

If you have not yet read Part I: Charting Gold, available free to all readers, please click here to read it first.

In Part I, we looked at conventional explanations of gold’s sudden collapse through support and did not find any evidence of correlation to either central-bank quantitative easing or the fluctuations in the U.S. dollar.  We next looked at the basic trend and concluded that, while gold has undoubtedly broken recent support, it’s too soon to say whether the bull market in gold is over or if this recent 30% decline is similar to the similar reversal seen in 2008, which presaged the Global Financial Meltdown and eventually sent gold to much higher prices.

My approach here is to consider the fundamentals as context but focus primarily on technical factors.

For many members of Peak Prosperity, the question boils down to: Is gold “on sale” now? (i.e., at a meaningful low) Or could it decline below the recent low of $1,321 and become even cheaper?

Sentiment Indicator

Let’s start by looking at one commonly used technical measure, sentiment.  The basic idea is that when sentiment reaches extremes of bullishness or bearishness, this often marks a top or bottom.