Last week the gold technical updates had gold breaking down through its rising linear trendline. And, through the $1,285 – $1,305 horizontal support that had been supporting prices since the June Brexit vote. By the end of the week, gold had closed at $1,257. The importance of these trendlines is apparent. Once they broke to the downside, there was a cascade of selling in the futures market.

The first point is we must acknowledge the determination of the sellers who showed up each time at the declining long-term (magenta color) downtrend. These long-term trendlines are critical to monitor for precisely the reason that their strength can be so high — as can be the sign of their eventual breaking.

 

gold-downtrend-2016 gold technical updates

 

Our best assessment is that the potential for the next low to form will be in the range of $1,200 – $1,251 for gold.

This is a wide range that is not suitable for short-term trading. But there is a confluence of support levels in this region where we place the highest likelihood for a low to now form in gold:

  • $,1251 – the 61.8% Fibonacci level of the primary December through July advance.
  • $1,232 – an equal-distance decline of the $$73 amplitude of the June through September consolidation between $1,305 and $1,378.
  • $1,212 – the 50% Fibonacci level of the same advance.
  • $1,200 – horizontal support held from February through June.

When there is a confluence of four technical support levels within such a range, we place a high likelihood for the next intermediate low to form within this price zone.

We should also note that immediately below this support zone is what is labeled “Must Hold Zone” for gold. This region is the 38.2% Fibonacci level of the primary advance at $1,173. And, broken October 2015 resistance-turned-support which is appearing near $1,200. This zone represents the lowest possible support for which we could still maintain the thesis that gold is in a new bull market. A break below $1,173 would raise the scenario that gold would form a new low below $1,045 in 2017. We place the probability of this scenario as low at present. Yet, the support region must be mentioned in the course of due diligence.

Silver Update

Silver has now come to the lower range of our likely support zone at $17.50. This is also matching the rising linear trendline of the entire advance since the January lows. This further matches closely with the 50% Fibonacci retracement of the rise at $17.42.

Breaking of the rising linear trendline from the lows now occurs. Recovery of the trend within 1-3 days would constitute a false breakdown in our analysis. But, we would need to see prices stabilize above $17.95 by Tuesday for this scenario to manifest.

The bullish posture for silver will remain intact as long as prices stay above the swing low of $15.85 from June. Such would place the current low at higher than the June low. Additionally, it will maintain the series of higher lows that are essential to the early phases of a new bull market.

We do not have a similar “Must Hold Zone” for silver as gold. This is seen as the primary determinant for the precious metals complex at this juncture.

 

silver-must-hold-zone-2016 gold technical updates

 

Chinese Buyers Away Last Week?

An interesting theory has been circulating. The theory is that last week’s declines in precious metals were purposefully orchestrated to coincide with the ironically-named “Golden Week” period in China. During this semi-annual 7-day holiday, the Chinese financial markets close. This includes the new Shanghai Gold Exchange. As China is still the world’s largest consumer of gold, there is merit to the idea that Chinese firms would have withdrawn their bids for physical metal before the week. So, this would have left the market more vulnerable to short sellers.

Ultimately we cannot know the exact extent to which the holiday impacted the losses in the metals last week. We must play the cards as they deal. So, that includes the breakdowns seen over the last several trading days. No matter who did the selling, we want to chart that activity as accurately as possible. My ultimate belief is that any attempts to manipulate markets can only succeed in the short run. The longer a market suppresses, the more imbalance builds up beneath the system. SO, like a beach ball held underwater, one day it will eventually shoot higher into the air. Throughout history, groups have attempted to prop up or suppress one market or another. Yet, they universally fail — and this time will be no different.


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. This is where he specialized in the creation and interpretation of the pattern-of-life mapping in Afghanistan and Iraq.

Technical analysis shares many similarities with mapping. They are 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 to identify both long-term market cycles and short-term opportunities for profit.

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

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