(There is what I believe to be a "treasure trove" of insights in the comments section at the end of this post that are worth spending time on.)
Let me start by saying I completely understand that there are valid reasons to buy gold for the long term as insurance and for savings. I also don't make trading decisions based on fundamental analysis.
Futures trade in a two way auction. Price is determined only by whatever amount someone is willing to bid or offer at a given moment. This is the truth. If the fundamentals are bullish, and the auction is bullish, a good trader is only going to be on one side of the trade, the right side. But if the auction is bearish what good are fundamentals? An Auction Market Analyst knows that the fundamentals will come out eventually, but by the time the "experts" have it right and are "genius" with the explanations after a move happens, the damage has been done unfortunately. An auction market analyst should never need anyone else's opinion for confirmation. The confirmations are on the chart.
I have been asked about the structure of the COT report in gold and how the large speculators have low open interest that hasn't been seen in a while, and if this is a buy or hold signal. This goes back to the "myths of trading". What is low today is relative to yesterday and not tomorrow. What is preventing the large speculators NET long position from becoming a NET short position? Each month you can hear the same story about the COT report being even more bullish while gold can plunge. I'm not predicting this; what I am saying is that COT analysis is only one important piece in the complete study of auction market analysis. I certainly don't believe it is a reliable timing tool. I have developed my own proprietary indicator that provides a score for price, volume, profile, open interest, and the COT report and I look at these for whether or not there is an "edge" in the supply and demand probabilities and for determining position sizing.
Let's go to the chart. There is a potential lethal "Descending Triangle" on the daily chart that is LARGE, (see right hand side below). A descending triangle shows increasing supply and weakening demand. When this prior demand throws in the towel and sells below the horizontal support level because they are in the "red", it increases the supply side pressure, which can cause the floor to cave in if there are "weak hands" on the long side of the current open interest. What is a weak hand? A trader who trades too big for his mental capacity or uses too much leverage. This old demand would likely be "gun-shy" in the near term. This can lead to "Vertical Development" or a market that is in "imbalance". Where is the stopping price going to be where supply equals demand again, nobody knows. I can tell you this much, once I have correctly identified the phase of development a market is trading in a given degree of timeframe it is absolutely critical for me to stick to my rules.
I have been looking to invest for the intermediate to long term in gold but I also have no interest in having my head handed to me on a breakdown. What I will be looking for is a failed breakdown in order to get comfortable with taking risk on the long side. This would be a sign that "strong hands" are accumulating. But in the meantime, a breakdown with an "Igniter Move" is not what I want to see. You can buy it all you want, I just don't have any desire for bargains in this business.
(Click on chart to expand)
What else is there to keep an eye on? Should "Major Support" hold and gold next breaks the upper trendline resistance of the triangle, this could develop into a very LARGE "Triple Bottom" pattern with extreme bullish implications. That is down the road, but intuitively I see it as a potential development to keep an eye on. I'm paying attention to the triangle in the meantime until something changes. I don't think it is wise to trade early in anticipation of any move.
On a side note, there was a textbook "Symmetrical Triangle" intraday today on the 5 minute chart.