Gold remains defined by its 2016 – 2018 horizontal resistance zone between $1,355 – $1,378. (below, black). And, its primary 2015 – 2018 rising support. Which now comes in at $1,240 (blue). This puts gold in a rising technical pattern whereby buyers are emerging at higher and higher intervals over time. Meanwhile, a determined group of sellers exists within a set range. This must be considered a bullish pattern until proven otherwise:
For the week in sum, gold fell $4 or 0.3% to close at $1,299 as of the final trade on the New York COMEX futures exchange as of the close of business on Friday.
Gold Short-Term Attempts to Recover
Over the short term, gold buyers are showing a valiant effort to negate the breakdown from the 5-month consolidation observed between December and May. Thus far, however, they have been unable to show conviction. The downtrend from the April peak was challenged this week at $1,302, but follow-through buying left no resolution.
Horizontal resistance, which formerly represented the support zone between $1,302 – $1,307, was plain to see, as sellers showed up on each spike high as gold approached this zone. We thus update the short-term perspective as follows:
The confluence of the declining trend (royal blue) and horizontal resistance (black) are close enough in proximity that a break above $1,307 would necessarily overcome both resistance levels simultaneously. We will know this is the case – and our targets for lower gold over the short run will have to be abandoned – if gold can close the week above $1,307.
For now, we still anticipate lower prices. A measured target of $1,235 based on the amplitude of the failed December through May consolidation ($1,369 – $1,302 = $67 amplitude… subtracted from the 1,302 failed support = $1,235) remains to be achieved.
Thus, any legitimacy by gold to overcome horizontal resistance between $1,302 – $1,307 would represent a bullish reversal. In other words, this would show that new buyers had stepped in before the anticipated “washing out” of traders to exit futures positions was complete, prior to the target of $1,235 being met. Any time a new series of buyers may show up before anticipated, this would be considered a bullish change in the behavior of the market.
Gold Leading Signal Remains Positive
Prior to a break of 2016 highs, it is important that we regularly monitor the relationship between the companies that dig gold out of the ground, and the very product they produce, for hints that this ratio may provide as per future earnings expectations. As such, we continue to see the GDX miners print increasingly higher highs, even while gold has been grinding lower. The divergence is becoming more clear to see by the week, and portends to a likely resolution for the sector higher, at least to break 2016 highs for gold within the next several months:
Gold Monthly Volume Near Record
Volume in the gold sector continues to pick up at a blistering pace across high-powered money. Which, typically trades in the futures market. Specifically, for the month May 2018, we see the 3rd highest volume of all-time moving into gold futures. It is at over 7.11 million contracts exchanged for the period. For reference, the 2nd and 1st-highest monthly volumes of all time also took place during the past 12 months. Which is at 7.15 million in October 2017. And, 7.30 million in January 2018, respectively.
It is too early to say how the full second quarter of 2018 will end. But these early signs indicate the quarter may set a new all-time record. Clearly, there is interest in gold building behind the headlines. This comes as a divergence as investor sentiment sours and premiums dwindle across the retail coin/bar sector. This is typical of a grinding consolidation which now stretches on for another month:
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. This is where he specialized 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. It does not necessarily match the views of the Bullion Exchanges. Readers should not consider it as financial advice in any way.