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Gold Trend Forecast for First Quarter of 2012


With all kinds of trouble about to erupt overseas, it's very possible gold will rally with the dollar.

Over the past five months, gold has fallen sharply and no longer dominates headline news as it did back in 2011 when it was making new highs every day.

The shiny metal has been under pressure because traders and investors have started to pull some money off the table to lock in gains. Gold prices had surged so fast that most advanced traders knew that final high-volume surge was not sustainable. But the main reason gold topped out in my opinion was because the US Dollar Index had put in a bottom and started to build a base. As we all know, a rising dollar typically means lower stocks and commodity prices.

I have posted some charts below covering gold in detail using multiple time frames. The weekly, which is long term; the daily, which is the intermediate trend; and the four-hour chart, which shows gold momentum and intraday action. At the very bottom I talk about the US dollar and what is happening with that.

Gold Weekly Long-Term Trend Analysis

The weekly chart is not the most exciting time frame to follow as you will grow old watching it. That being said, it is crucial for understanding the long- term trend, price, and volume analysis.

Below you can see that gold's recent pullback has been a 3 wave correction, which is a normal pullback for any investment. But taking into account the rally from 2008 to 2011, I feel this pullback will have one more low put in before bottoming out. This would make for a 5 wave correction much like what happened in 2008.

Daily Chart of Gold Showing the Intermediate Trend

The daily chart allows us to see gold intraweek price action and use the 150 moving average, which is my preferred daily moving average. As you can see we are getting a similar pullback as 2008, with gold now trading under the 150 MA.

I would like to see gold make another lower low in the next two to three months. If that happens, I feel it will complete the correction and trigger a strong multimonth or multiyear rally in gold.

Four-Hour Intraday Chart of Gold

The four-hour chart of gold allows us to see all the intraday price action which would normally not be seen with a daily chart. It also gives us enough data to build our analysis upon.

This is my preferred setup for gold; I feel if it happens it will trigger major buying in the yellow metal. If/when we get a rally in gold, it would also likely mean some more economic uncertainty has entered the market from within the US, Europe, or China.

Weekly Dollar Index Long-Term Analysis

The dollar has the potential to rally to the 87 to 88 level before putting in a major top. For this to happen, we will need to see the euro crumble (both currency and countries divide) in my opinion.

If you look at the weekly chart of gold and this chart of the dollar index, you will notice that gold topped when the dollar bottomed. Over the past couple of years, gold and the dollar have had an inverse relationship to each other.

With all kinds of you-know-what about to hit the fan overseas, I think it's very possible gold will rally with the dollar. There are way more people overseas who want to unload their euros, and with all the negative talk and doubt with the US dollar, individuals will naturally want to buy more gold.

Weekend Trend Trading Conclusion:
In short, I expect a bumpy ride for both stocks and commodities in the first quarter of 2012. With any luck, gold will pull back into my price zone, shaking the majority of short-term traders out just before it bottoms. And we will be positioning ourselves for a strong rally buying into their panic selling.

To just touch base on the general stock market quickly, I have a very bearish outlook for stocks. If the dollar continues to rise, it is very likely the stock market will fall into a bear market. So I am very cautious with stock at this time.

Editor's Note: Chris Vermeulen offers more content at his site,
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No positions in stocks mentioned.

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