Gold Dips after Mid-October Rally, What’s Next?

October is always a difficult time of year in investment circles. The return to work after the summer break has settled into a routine, deals are being cemented, and plans made for the coming year.

The panic of 1907 occurred in the October of that year with heavy panic selling on Wall Street and multiple bank runs. The great crash of 1929 also occurred in October, as did the more recent Black Monday, of 1987, which saw the Dow drop 22%, before recovering.

Investors who are nervous about the current level of the Dow, at just under $2,600, certainly don’t seem to be deserting to gold, if the current price and technical charts are anything to go by.

The downward trend since mid-October is very clear. The price has closed below the 21-day EMA for almost a week now, and it shows no sign of rallying to the upside. The 50-day SMA (green line) Has been steadily increasing since mid-July, and really accelerated until around October when it began to flatten off. It is now beginning a downward trend and as a major resistance line, this would point to a lowering of the price in the near future.

Right now the price is almost at the support level it was on 6 October where it briefly hit $1,260. The price then rallied – but it never actually closed above the 21-day EMA. On the three days where it went above this line, there was never enough momentum to push it into the higher-priced territory. Since then there has been a downtrend back towards the $1,260 support. Gold was trading at $1273 at the time of the report.

The current pulse signal is also backing up the downward trend that started on 20th October as seen in the chart, turned dark green, with red dots indicating a downward pulse, and red pulse lines forming after 26 October, as confirmation of this. In addition, the 14-day ADX indicator shows a strong downward movement from the 30 level II well below 10 since mid-October.

Finally, the divergence trend has started to show negative sentiment after the blue dot which indicated a change in direction in mid-October. The negative blue wave lines also indicating a stronger negative pressure coming into play.

It is interesting that gold has ignored some fundamental weaknesses in the market which are coming into play. We do not think this will last.

Europe is finding itself in political turmoil, once more, as Catalonia tries a painful breakaway from Spain. The fallout from this could be significant. The fragile recovery of the EU has undergone since the 2011 debt crisis when Greece, Italy, Portugal, Ireland, and of course, Spain became net debtors which have been a direct result of the support from France, Germany, and the UK, whose main reason of exit the Eurozone has been to recoup the losses which resulted from them lending irresponsibly to their southern neighbours in the first place.

€60 billion a month, purchasing bonds as a stimulus, by the ECB, has eased the pain. But painkillers are only effective for a short period of time. The Eurozone crisis which is beginning to appear goes way beyond the covering of debts.

The political risk involved in creating a federal Europe, never really included dissent. It was always assumed that the member countries would go along with the grand plan. Increasingly disenfranchised voters are becoming more vocal in their objections, more nationalistic, and at the same time, the affected countries find themselves socially and economically unbalanced, to a degree not seen for decades.

The October 1st vote for Catalonian independence from Spain, combined with Britain’s exit from the European stage, last year, may so the seeds of fragmentation in countries like Czechoslovakia, which has an election coming up soon.

Along with the return of sovereignty to the countries involved, is the ability to regain control over interest rates, monetary policy, and day-to-day financial decisions. This may include the phenomenon of “bail-ins.” These describe the ability of governments to confiscate savings to prevent bank insolvency and dire financial crises.

This phenomenon is something which is only just beginning to be talked about. This may seem a far-fetched threat, but this current dip in gold prices could well come to be seen as a buying opportunity. Precious metals, particularly gold, are the only way to avoid confiscation, allocated accounts with outright legal ownership, would safeguard against any threat.

We live in strange times – it is worth considering the “stranger” alternative strategies for safety.

Noble Gold specializes in IRAs and 401(k) rollovers through precious metals and cryptocurrencies investments.