On the heels of continued commodity weakness following the US – Chinese trade wars, gold has suffered a medium-term trend break over the past week. (See last week’s article).  This must alter our outlook for precious metals over the intermediate future. The final print for gold on the New York COMEX futures market as of Friday afternoon was $1,231, a loss of $10 or 0.8%. Gold price movements are now expected to be defined by a series of broken former trends. This should result in a range-bound market as a net sum over the next 12 – 18 months at a minimum.

The long-term gold chart is updated below:

 

 

RESISTANCE (expected sellers)

  • Gold’s broken 2015 – 2018 rising support (blue) should now act as primary resistance. Former buyers look to sell near break-even as the price returns to the broken trend. This level comes in at $1,248 and rising. Please note, a market may return to test its broken trend at a slightly higher level than the original breakdown.
  • Gold’s 2016 – 2018 resistance zone (black) between $1,355 – $1,378 saw all-time record high volume over the past six quarters. This will act as major resistance for gold over the next 12 – 18 months. A record number of contract holders and physical metals holders will be looking to exit their positions near this zone the next time gold approaches it.

SUPPORT (expected buyers)

  • Gold has initial support at a series of minor levels which correspond with swing lows from 2017. These levels come in at $1,215, $1,195, and $1,180, respectively. Gold may experience short-term bounces at any of these levels.
  • More significant support exists between $1,045 – $1,124. This in sum comprises the 2015 – 2016 Bottom Support Zone (labeled above in black).
  • Gold’s broken 2011 – 2017 long-term downtrend (shown above in turquoise) will be meeting with the 2015 – 2016 Bottom Support Zone (black) in October 2018. The combination of this broken declining resistance level and the horizontal support zone now become a high-probability confluence whereby gold may find its next significant low ($1,045 – $1,124).

In sum, we will be looking for the next major low to form with a high probability in the 2015 – 2016 Bottom Support Zone between $1,045 – $1,124. An equal or marginally higher-low above the 2015 bottom would constitute a functional double-bottom pattern. A new marginal low below the 2015 bottom cannot be ruled out altogether.

 

ON A FALSE BREAKDOWN

On the possibility that gold could negate its breakdown and begin advancing again over the near term: we should respect trend breaks unless proven otherwise. Gold has failed to maintain the structure of its attempted 2013 – 2018 bottom. We must place the preponderance of evidence on the expectation that a new lower price trajectory is thus developing. If gold were somehow to negate this breakdown we would surely welcome it. However, the market will need to prove itself to us.

 

 

The signal which would invalidate gold’s breakdown would be for the market to climb back above the broken 2015 – 2018 trendline and begin to stabilize above this region over the coming weeks. The closing number to watch for in such a scenario would be $1,248 and rising each week. However, to be more certain,  we would like to see the swing high from July 9 at $1,266 exceeded.

Such a scenario would result in a “false breakdown” below the primary rising 2015 – 2018 trend and would set the stage for the resumption of gold’s advance. We would change our intermediate-term negative outlook only if this scenario were to manifest.

 

TAKEAWAY

Unless proven otherwise in a rare false signal, we must respect gold’s trend breakdown. All-time record volume was seen over the last several quarters at recent highs. The 2016 – 2018 resistance zone should not be exceeded for the foreseeable future.


 

Christopher Aaron
Bullion Exchanges Market Analyst

Christopher Aaron has been trading in the commodity and financial markets since the early 2000’s. He began his career as an intelligence analyst for the Central Intelligence Agency. 

Christopher Aaron  specializes in the creation and interpretation of pattern-of-life mapping in Afghanistan and Iraq. His strategy of blending behavioral and technical analysis has helped him and his clients to identify both long-term market cycles and short-term opportunities for profit.

This article is a third party analysis and does not necessarily matches views of Bullion Exchanges. Do not consider Bullion Exchanges as financial advice in any way.

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