Gold cracks $1,100. Here’s what’s next and what to do …

SCT Issue #234

Late last night, around 9 pm EST – early this morning in Asia – gold cracked $1,100, sliding as low as $1,080. It has since rallied back to the $1,113 area as I pen this issue, but has clearly busted right through support at $1,130, which should now become resistance.

The impetus for the decline was Friday’s report that the People’s Bank of China – China’s central bank – acquired far less gold reserves than most had expected. In its first official gold reserves report since April 2009, the bank reported its gold reserves stood at 53.3 million ounces, or 1,658 metric tons, in June.

That’s an increase of 604 metric tons since its last report in 2009, up from 1,054 metric tons, an increase of 33.88 million ounces. But it’s less than half what the market was expecting, which was a total of well over 3,000 metric tons.

Of course, the disappointment is no surprise to me. Nor should it be a surprise to you. I’ve said a few times that when Beijing releases its latest gold reserve report, that it will show far less gold purchases than what most analysts were expecting.

And, as you also well know, gold is still in bear mode. So the action is hardly surprising; the news from Beijing merely serves to confirm the existing trend lower.

So what’s next for gold?

Gold has already bounced roughly $33 higher off its low from 9:15 pm EST last night. A further bounce is likely, as high as $1,130, which should now prove formidable resistance.

Don’t let the bounce faze you. As you can see from my updated cycle chart, cycles point lower into August 4.

From there, we should get a more sustainable bounce into late September, then a collapse into what should prove to be a final bear market low in November.

Let the bounce unfold. As gold then turns lower, we will look to bag profits on bearish positions, which are now up 8.3% on DZZ and 32.3% on the December GLD 110 put options.

Hold all other positions and stay tuned …

Best wishes,

Larry