The declines in gold and silver this week fit in line with our expectation that the rallies since August were due to correct. Further declines are expected over the months ahead. However, just as gold did not advance in a straight line over the past six months. Neither will it decline in such a manner. Still, the most prudent thing we can do at this juncture is to prepare for an intermediate-term decline. And to begin to set our sights on potential bottoming zones for mid-2019.
For the week in sum, gold was lower by $37 or 2.5%. The final trade on Friday afternoon as of the close of the New York COMEX was $1,299, although gold continued to drift lower in the access market toward $1,295 by 5 pm EST.
Gold Short-Term Support
Gold sliced through minor support at $1,300 on Friday as though it were not even there. Thus, we must turn our attention to the following lower support levels to identify likely targets for the next significant low. We will refer to the following chart:
- $1,290 (and rising each week): the broken upper parallel trendline (turquoise color) from the August 2018 bottom, which should provide minor support only.
- $1,240 – $1,245: minor horizontal support (black dashed line), dating back to late-2017, which has acted as resistance and support on four separate occasions since.
- $1,235 (and rising each week): the lower parallel trendline of gold’s advance from the August 2018 bottom (dashed teal line) and the 38.2% Fibonacci level of the entire August 2018 through February 2019 advance (light silver line).
- $1,205 (and rising each week): the long-term 2006 – 2019 support (magenta), shown on the multi-decade charts (see below).
Our highest expectation is that gold will retreat back to this long-term support level in the low $1,200’s over the coming months and that this will represent a critical long-term support test approximately midway through 2019 (red callout).
It is important to place the previous chart into context. Below we show the two-decade perspective for gold.
The most critical point relates to the long-term (magenta-colored) trend test which we predict will occur during mid-2019. Note how far back in time this trend originated: 2001, when it represented the upper resistance line of gold’s original advance, at $290 per ounce:
This same trend served as resistance in 2003 at $385 per ounce, in 2004 at $430, and was then broken higher (red shading) in 2006 at $525 per ounce.
The same trend has since acted as a level where buying support has emerged. Note the multiple tests on this trend in 2006 above $550. Then again during the Crash of 2008, this same trend held gold higher at $680. Again in 2015, this trend served as support at $1,045.
In other words: this same trend of sellers and buyers has been exerting influence on gold for nearly 20 years.
When we say that we consider the trend to be of critical importance, that is exactly what is meant with no exaggeration. Again, the support test would come in the $1,205 region if it were to be hit today. Of course, the level to watch is rising slightly each week.
Takeaway on Gold
The decline we have been anticipating for months has begun. Minor support levels exist through $1,235. However, critical long-term support exists just above $1,200.
Long-term precious metals investors will want to monitor the strength of any gold test in that region over the coming months.
If the long-term support holds, gold could reasonably round up and break out above 2016 highs for good later this year… however, if it fails, a multi-year decline back toward the low $1,000’s is the next logical target.
We will be judging a host of factors including the gold to silver ratio, the gold to Japanese yen ratio, gold versus stocks, and the relative strength of the mining sector as this pending low develops, in order to gauge the outcome for this critical test.
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.
Christopher Aaron specializes in the creation and interpretation of pattern-of-life mapping in Afghanistan and Iraq. His strategy has helped 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 match the views of Bullion Exchanges. Do not consider Bullion Exchanges as financial advice in any way.