Last week we noted that silver had broken its year-long support zone. Silver was between $15.75 – $16.15 during the prior week’s flash crash. What does this apparent breakdown mean for gold? Let us update the technical perspective in a market review for gold for the short and intermediate timeframes:
For the week as a sum, gold rose 1.5% or $18 to close at $1,227. This was as of the final trade in New York on Friday afternoon.
Two weeks ago, gold broke short-term rising support at $1,232. (Turquoise line, above). This trendline was rising. We must recall that retests of rising trendlines can indeed occur at a different price level than the original breakdown point. In this case, it’s higher.
Thus, our best assessment is that gold is set to move moderately higher for the remainder of July and into August. Below its broken short-term support. This means that gold should continue somewhat higher for the next 4-6 weeks below $1,250.
We expect gold will not regain its broken (turquoise color) trendline yet. Tere to negate its recent breakdown and recapture $1,250, the convergence of this short-term (turquoise) trend and the long-term (magenta color) 2011-2017 downtrend would occur at nearly the same price level by late-August: $1,250. So, it would be one of the most precise technical signals we could ask for. This is to indicate a new strong rising trend had begun. Hence, both a breakout from a short-term and long-term resistance level simultaneously.
Officially, there are 5.5 months left before the giant pennant-shaped consolidation shown above must resolve in one direction or another. This would be quite literally at the end of the calendar year. In December, visible at the far right of the chart above.
However, in the vast majority of famous examples, these patterns will resolve several months before the actual apex occurs. The August – October timeframe is our best estimation. As for confirmation to whether we will have a legitimate bull market on our hands or the beginning of a decline to new lows perhaps below the 2015 bottoms. There will be opportunities to profit and protect ourselves in either scenario. However, we must get the primary direction correct first.
For now, short-term traders should know that whiplash is likely. Gold is officially “trendless.” It has broken both its short-term downtrend since June and its common rising trend from January lows. This is all within the confines of the much more massive consolidation.
Expect volatility to begin lessening and for gold to appear almost unconscious during the last several weeks. It is immediately before either a breakdown or breakout in the August – October timeframe.
Market Review – Investment Considerations
How one chooses to position before the resolution of gold’s large consolidation pattern is mostly a factor of personal goals. Additionally, time horizons, and risk tolerance come into play.
For example, an investor on a long-term accumulation plan would likely welcome a period of lower prices should they manifest. After all, buying an asset for lower rates over the short-run can lead to a lower dollar-cost average price for the long-term holding.
Shorter-term time horizon
We might choose to pay closer attention to the resolution of the chart pattern shown above. If the pattern resolves higher, gold is calculated to see a surge of $200 – $300. This is within the following of 12 months. However, if the pattern resolves lower, an equally large decline is what the target calls for. These might sound like two extreme scenarios. These are precisely the types of moves that predict the resolution of converging consolidation patterns.
We are now in the terminal last months of gold’s consolidation. Readers should not assume that gold will remain so quiet going forward as it has over the past year. Please stay tuned as we zero in on leading indicators over the next few months. They should help us gain insight into gold’s coming resolution in one direction or the other.
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. The CIA is where he specialized in the creation and interpretation of pattern-of-life mapping in Afghanistan and Iraq.
Technical analysis shares many similarities with mapping. They 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. It has helped to identify both long-term market cycles and short-term opportunities for profit.
This article is third-party analysis. It does not necessarily match views of Bullion Exchanges. Readers should not consieder it as financial advice in any way.