Precious metals came under pressure last week, as buying following the previous week’s Federal Reserve interest rate decision subsided. For the week, gold was lower by $14 or 1.1% to close at $1,298 as of the final trade on the New York COMEX futures market on Friday afternoon.

The weakness has largely been in line with our expectations, as noted in this recent article on the leading divergent signal which had appeared for gold versus the Japanese yen in recent months (https://bullionexchanges.com/blog/2019/03/12/japanese-yen-signals-warning-for-gold/).

This week’s decline calls for an update to our technical projection model. Where is gold likely to find support if further selling ensues over the week ahead?

Gold Support Zones

Gold has very minor support in the $1,280 – $1,285 region, representing the last two short-term bottoms, one each in late January and early March.

However, if selling pressure intensifies this week, we are doubtful that this minor support level will hold.

More moderate support exists in the $1,240 – $1,250 zone, which, as shown on the chart below, represents a horizontal support level dating back to December 2017 (black dashed line), and the rising trendline which began with the August 2018 bottom at $1,160 (teal dashed line). As both of these support zones encompass a narrow band, we can call the support level a region where we expect buyers to emerge.

In the highest probability, however, after a multi-week bounce, this $1,240 – $1,250 support zone should also come under pressure. Any further weakness will bring gold back to a critical long-term support zone which exists squarely at $1,210, highlighted above in red.

Critical Support at $1,210

To reiterate: it will be critical for the health of the entire precious metals market that gold holds above $1,210 over the coming months. Why is this level so important?

To understand the relevance here, we must revisit the long-term perspective. Reference below the chart of gold from the year 2000 – present:
Note the upper long-term (dashed magenta color) line, dating back to the year 2000.

From 2000 through 2006, this trend served as resistance every 6 – 18 months. In other words, it served as a level where sellers emerged on repeated occasions.

History of the Buying Trend

In 2006, buyers were finally able to overcome this group of sellers. Note the red highlight in early 2006, which shows when buyers first achieved this feat.

The principle of broken resistance 🡪 turning to support is visible here. Note how following the breakout, this now-broken trend served as support all throughout 2006 above $500 per ounce.

Following gold’s acceleration above $1,000 and subsequent decline during the Crash of 2008, this same rising trend served as buying support at $680 during October 2008.

Fast forward seven years later, and following gold’s nearly five-year decline from the 2011 peak above $1,900, this exact same trend of buyers emerged at the 2015 low of $1,045 per ounce.

Finally, during the recent decline into August 2018, buying interest emerged on this trend just above $1,160.

Is it any coincidence that buying has emerged along a visible trend dating back over a decade?

The saying in market analysis is: “The trend is your friend.”

Well, this multi-decade trend of buyers now comes in at $1,210. Because we do not want to get too precise (markets always act with a buffer zone), we should call the support zone anything above $1,200.

Takeaway on Gold

Circa $1,200 is our highest-probably expectation for gold over the coming months. It will be critical that gold holds this support to keep the structure of its long-term advance intact.

We will be evaluating a host of signals over the coming months to help us judge the likelihood for that support test holding, including the Japanese yen to gold ratio, the gold to silver ratio, leading indicators from the gold mining complex, and the US dollar.

Stay tuned to these pages over the months ahead as the support zone comes into focus.

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. 

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.

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