Two weeks ago a higher gold breakout came through. It was the long-term declining downtrend which has defined the period of falling prices since 2011. That year, gold peaked at $1,923 per ounce. Meanwhile silver rose just shy of $50. Over the past six years, gold has been unable to overcome this critical technical resistance level.

Since the surge of first-half 2016, gold has made no less than seven attempts to overcome this downtrend. Those attempts are highlighted on the chart below by the magenta-colored arrows. Each time gold reached this declining trend; sellers showed up. They forced the price back lower – sometimes by only $40 – $50 per ounce. Sometimes by over $200 per ounce, as was seen last November.

Gold breakout 2011- present

Gold has now made its most legitimate breakout attempt. Furthermore, it has sustained the breakout for two full weeks.
Before we examine price projections, we must note that for the breakout to remain valid.  Prices must stay above $1,260 on a daily closing basis. If this level were to fail, it would invalidate the breakout. We would have (once again) another failed attempt. False-moves are possible in all markets. The best way to handle them is to have a defined price point whereby if a failure occurs. We can examine alternate scenarios. Again, $1,260 must hold – and thus far, prices have done so.

Gold Breakout Importance

Readers should not underestimate the importance of this trend. Many technical-based buyers have remained on the sidelines for the past six years. This is as gold prices moved lower and then drifted sideways. A sustained break above a declining trendline is often a signal some will use that the period of falling prices is likely over. We expect these investors will begin entering the gold market shortly, and momentum will begin to build.

Short-Term Resistance Levels

Over the next several weeks, gold must overcome the $1,300 zone as initial resistance.

$1,300 has held prices lower since the reversal which took place on the night of Trump’s victory, last November. This is presently the third attempt for gold to overcome this price. Each effort represents a “chipping away” by buyers. This is at the overhang of sellers who are exiting their positions near break even.

What will typically happen as a specific horizontal resistance level is that the reactions lower on each failure will become less and less severe. This will indicate to buyers a higher price point is at every sell-off. Shortly, we expect $1,300 will break. At that point, a whole new class of buyers will begin paying attention to the precious metals market.

Intermediate Price Targets

Gold can remain above $1,260 and soon recapture $1,300. Thus solidifying the long-term downtrend break. We have much higher price targets ahead over the next 6-18 months.

Three specific price targets occur within close proximity, and this confluence represents our highest probability target:

  1. The consolidation which took place from December 2015 through August 2017 featured an amplitude of $330 per ounce. From the low of $1,045 to the high of $1,375. This consolidation took place in the form of a giant triangle-shaped formation. In technical analysis when triangle-consolidation breaks, the target is derived from an equal measurement of the amplitude ($330). This adds to the apex of the triangle ($1,205). This calculation gives a target of $1,535.
  2. There is evident horizontal resistance visible on the chart at $1,525 (black line). This level formerly acted as support in 2011 – 2013. Then it failed on the fourth test in early 2013. Generally, defined former support levels will subsequently serve as resistance on the next attempt to overcome them as sellers emerge.
  3. The 50% Fibonacci retracement level of the entire 2011 – 2015 decline comes in at $1,485. Fibonacci was an Italian mathematician of the 12th century who discovered that many aspects of nature all follow a similar ratio pattern. Financial markets often follow these similar patterns. The markets are a component of (human) nature.

Takeaway on Gold & The Breakout

In sum, we have three strong technical targets between $1,485 – $1,535. This level represents our highest probability for a future intermediate gold peak.

These targets should reach within 6-18 months. This depends on the host of geopolitical and market factors impact the precious metals. These represent starting targets only. At which point new analysis should come into play.

Assuming gold maintains above $1,260 in the coming weeks, this technical breakout is significant and bears monitoring by investors. We expect that when $1,300 breaks, momentum will begin to pick up notably on the way to the higher targets. Investors may choose to accelerate a certain percentage of purchases as fitting in with an overall investment plan.

 


Christopher Aaron,
Bullion Exchanges Market Analyst

Christopher Aaron has been trading in the commodity and financial markets since the early 2000s. He began his career as an intelligence analyst for the Central Intelligence Agency. The CIA is where he specialized in the creation and interpretation of pattern-of-life mapping in Afghanistan and Iraq.

Technical analysis shares many similarities with mapping. They both base on the observations of repeating and embedded patterns in human nature.

His strategy of blending behavioral and technical analysis has helped him and his clients. It has helped him to identify both long-term market cycles and short-term opportunities for profit.

This article is third-party analysis. It does not necessarily match views of Bullion Exchanges. Readers should not consider it as financial advice in any way.

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