Long Term Monthly Gold Chart

Can you see the significance of the 1280 region? It is the 38.2% Fibonacci Retracement level of the entire rally from the secondary low made back in April 2001 and the peak above $1900 made in September 2011. On the monthly chart, the price fell below that level reaching 1180 (1179 to be exact) but it did not see any downside followthrough the next month as it immediately rebounded eventually pushing back above $1400 before failing once again.

Now it is back to testing that level and though it is early in the month of November still, if gold closes out this month below that level, December will be a critical test of the resolve of the bulls. Failure to stay above $1280 on a month ending basis on TWO CONSECUTIVE MONTHS, would increase the likelihood of another test of that spike low near $1180. Were that to fail, the next critical target for gold would be near the 50% retracement of the entire decade long bull market in gold ( 2001- 2011).

That would probably represent a good area for longer term oriented players to begin buying as you are talking about prices below the cost of production for many gold mining companies.

I am not predicting a move to this area as of now, I am merely setting up some possible scenarios IF PRICE PERFORMS AS I MENTIONED ABOVE. Remember, we are trying to listen to the voice of the market only and tuning out anything else. That is the only way to ultimately be successful as a trader/investor.

One thing that this chart also shows us is that in order for the bulls to turn this chart to their advantage, they MUST take price at a bare minimum back above the $1400 level and hold it there.

Much of this will depend on market expectations in regards to the overall inflation picture. Today, crude oil is falling sharply again having neared $93. If it fails to secure a foothold near this level, steeper losses are ahead. It is most difficult, if not impossible, to make an argument for inflation if energy prices are sinking.

On the food side of the ledger, soybeans are moving higher and have been since that USDA report last week but that is coming mainly on the heels of reported sales to China. China is notorious for booking sales but then cancelling those sales later if prices drop so beans need some more time to see how the demand is going to hold up at these higher levels. Corn appears to have found a short-term interim bottom but it is difficult for me to get bullish on corn when a record crop is still coming our way. Much depends on the S. American growing season. If it continues to get off to a good start, both corn and beans should stop moving higher sooner rather than later. I am monitoring both charts to get a sense of these all important foods, not to mention wheat, which also has stabilized. That however seems to me to be more a function of spillover buying from the corn and bean markets than any outright bullish wheat fundamentals.

Stay tuned...