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Gold is still in bear market, but where is the bottom? Chris Vermeulen on what you need to know

Kitco News

(Kitco News) - Gold's price pattern has put in a bottom for now, but there is no certainty that the trend now has turned definitively bullish, said Chris Vermeulen, chief market strategist at TheTechnicalTraders.com.

"I think gold's put in a bottom, it feels like it, the charts look like it, but really, we're not confirmed that…the trend is now up," Vermeulen told David Lin, anchor for Kitco News.

Currently, the 200-day moving average is still higher than gold's 50-day moving average, but should they converge in a pattern known as the "golden cross," which could happen at the $1,850 an ounce mark, a breakout to the upside could happen, Vermeulen said.

"If we break $1,850, it's going to pop very quickly to $1,960, but that is going to be a very significant level where bit money has sold into before and when we break the [50-day moving average], that is when I think we start the next major bull leg to the upside for all of the precious metals and the miners," he said.

On the downside, Vermeulen said that on a multi-month basis, gold is still in a bear market, and it is still possible for this trend to continue.
"We could use Fibonacci extensions to get an idea of where the next low will be, and it's pretty far down," he said. "Depending on where [gold price] bounces, the chart says $1,500. That's the downside potential."

On equities, Vermeulen said that the S&P 500 has put in a topping pattern, and it should start correcting by 3%-5% before continuing higher.

"I think the stock market is a little overdone to the upside. We are starting to see big money rotate into the defensive plays, like we're seeing gold and miners perform very well, we're seeing utilities perform exceptionally well, bonds are putting in a bottom, consumer staples, which everyone needs, are starting to outperform and so is healthcare," he said.

When defensive sectors outpace the broad equites indices, that is usually a signal for a return of fear and volatility, Vermeulen noted.          
Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.