On January 7th I discussed (here: http://investorplace.com/2013/01/gold-dont-rush-to-get-long/) that those looking at gold from the long-side may have some time left to initiate their position for the next more meaningful up-swing. In the meantime gold has staged a small relief rally but over the past few days has already begun to weaken again, which should be a good time to revisit the charts for an update.

For purposes of analysis and as a proxy to gold I will again use the SPDR Gold Trust (NYSE:GLD) exchange-traded fund.

The broad divergence between stocks and gold (gold lower, stocks higher) from recent weeks continues and at some point may offer a mean reversion trade for those patient enough to wait.

The latest up-swing on the chart of  SPDR Gold Trust (NYSE:GLD), which measures from the lows in may 2012 up to the highs in early October 2012, retraced to the important 61.80% Fibonacci support line in December.  The ensuing 3.00% bounce in early January however looks weak so as to potentially threaten/challenge the December lows near $158 yet again.  Should said level get breached there is no real support until the low $150’s.

To measure a potential first downside target in case the December lows are breached I must zoom closer into the down-swing that started in early October 2012.  The most recent swing within this down-swing measures from the top in late November down to the December lows.  The January reflex rally bounced the SPDR Gold Trust (NYSE:GLD) right up to the 50% retracement line of this swing.  A logical and conservative first target thus must be measured off this smaller swing.  A simple 23.80% Fibonacci extension of the swing gets us a target near the low $155’s, or about 3.00% lower.

Despite the fact that the correlation between the S&P 500 and gold has unhinged as of late, it may be too early for a mean-reversion trade.  The near-term charts of the SPDR Gold Trust (NYSE:GLD), and thus of gold look to point the metal somewhat lower for now.  In other words, especially a break of the $158 area may signal more weakness in the near-term, which however could ultimately serve as a better bottom-building process.


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