Gold ($GLD) has been in a waterfall-like decline for 2013, off nearly 23% YTD. The team at Ned Davis Research believe that the price of the shiny metal may be approaching a level of support. John LaForge and Warren Pies of NDR are looking at both a long-term trend line as well as extremely negative sentiment in their recent analysis of gold.
Here’s NDR’s chart of exchange-traded fund outflows plus the notional value of large speculators’ net positioning in gold futures.The combined selling pressure of these two sources has averaged $6.5 billion a month for six months, they write, which is the largest since the launch of those traders’ favorite vehicle, SPDR Gold Trust (GLD), and smalltime investors’ preferred ETF, iShares Gold Trust (IAU), about eight years ago.
This is the chart LaForge and Pies are referring to. You can see the huge outflow from gold futures and gold ETFs – which dwarfs all previous outflows over the last seven years.
From a technical perspective, bulls have “one last major line in the sand left, the long-term trendline, which sits in the low $1,100s,” writes the Ned Davis duo:
Action in gold is getting uglier by the day, thanks to speculators. Next stop is likely in the low-to-mid $1100s. Fundamental buyers, such as China, continue to buy the dips. If you do not believe that the financial repression theme is at its end, gold could be a good buy in the $1100s. The commodity secular move is not officially dead, but ugly swings in gold and Chinese equities have us worried that the end is near. Copper, surprisingly, is holding firm.
Taking a long-term view of gold we can see the $1,100 support that NDR is talking about off the 2001 low. Will we see $1,100? At the current pace of decline in gold prices, it’s not hard to imagine. I’ll be watching this trend line and see if support is able to hold as gold futures and ETFs continue to bleed.
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