You’re probably tired of hearing it as much as I am of writing about it but It doesn’t seem to matter where I turn in the markets, most every asset class is in some sort of “hanging by a thread” moment. Stocks broke out to the upside and are coming back to retest that breakout. Failing would be a very bearish sign. Bonds broke to the downside and are coming back to retest the breakdown. Failing would be very bullish. The topic of this post, precious metals or specifically gold, is no different as you can see in its daily chart below. It’s pretty obvious the $1310 level is of critical importance as it has tested it 6 times (2 from the underside and 4 from above) and where it sits presently. In addition to price closing Friday’s at horizontal support, it also closed right on the (blue) rising trend line which has acted as support 4 other times. These, combined with the fact price is above a rising 200 day moving average is constructively bullish. On the flip side providing the bears some room for optimism is the bearish negative divergence in RSI momentum, a double top and most recently, lower highs in price .
Extending our look to the weekly time frame it becomes much clearer to see that the current weakness comes at a very logical place as this level had been a point of resistance 3 times in the past when gold was in its protracted downtrend. After a strong 6 week uptrend that started in mid-May, a period of consolidation is expected and needed. Another feather for the bulls is recent action looks very much like a bull flag which, if it resolves to the upside, would provide a target up near the $1550 level.
As is always the case, current chart signals are mixed providing fuel for both bulls and bears, supporting both arguments. Having no bias and using a weight of the evidence approach, my expected intermediate term outcome would be a bullish continuation. In the short term though, because the more times a price tests a level the higher the probability it will break it, I am expecting a break below the current $1310 support opening the door for a retest of $1295 area where there exists strong support a likely area to revers. The eventual break above the longstanding $1380 resistance (red horizontal line) opens up the door for the potential of big upside as there is little overhead supply until it reaches $1575 which is what I am favoring longer term.
I do not know what will happen next I am just laying out one possible scenario so please do not take these ramblings as predictions or advice. Regardless of what happens next though, I expect Wednesday’s fed announcement will be the “event” providing the catalyst for the precious metals sector’s next big move.