Spot Gold finally shows its true colors

The chart you are looking at to the left is the WEEKLY price chart of the spot gold price as of the time of this posting.  Right now we are roughly trading at 888 on the spot gold price which is roughly 27 dollars down from yesterday.

As you can see from the chart on the left that the weekly spot gold price has once again come right down to test the long term up trend line since October-November of 2008.  This is a fairly long trend line and so has good time support on it.  We also see that it has been touched 3 other times pretty clearly.

But again we are almost sitting on this down trend line right now if not slightly under it based on the weekly prices.  Today is also the Fed meeting so we will have to see what if anything that does to moderate this price decline.  There are only two more days left in this week, so Friday of this week is going to determine the final look of this weekly price bar. I point out this obvious point because of the crucial nature of the spot gold price holding this weekly support.  We either hold it or we do not, and we may know by Friday whether we do or not.

So what happens if we break below this trend line?  If we break below this longer term supporting trend line, then to me it definitely warns at the very least that we are in for a much more complex longer duration correction in the spot gold price.  Sometimes you just have to respect a trend line no matter what your belief is.  It is about as logical as you can get in any market.  Now we have not broken it officially yet and it remains to be seen by the end of the week if we do or not.

I wrote a piece over at BestOnlinetrades dot com on the Dow Jones Industrial Average which basically makes the case that we have seen a major bottom in the Dow and have the potential for a very substantial rally perhaps much larger than most believe at this point.  Basically I make the case that the Dow could be making as significant a low as was seen in the December 1974 bottom.  The reason I mention this is because if it is true that we are making such a significant bottom the Dow, it makes you wonder what is in store for the spot gold price.  Given all the devastation that took place during the bear market decline that went into March 2009, one would have thought that the gold price should have easily spiked to 1400 at least, but it has not.  I am not saying it still can’t do that, but what I am saying is that we need to be really watchful about the nature of the rally in the broad market and how it may or may not affect the spot gold price going forward.

In thid mid 1970’s, we did see that the Dow made a spike V type bottom, but at the same time we also saw the gold price top out at 200.  From then on we saw the Dow rally very strongly and the gold price corrected to 100, a 50% correction.  Are we in a similar type situation now?  It is still too early to tell. For now let’s focus on this weekly trend line in the spot gold price and see how the S&P 500 reacts to its down trend line.