Gold was resilient over the last two weeks. In holding up over the $1,200 level, it indeed almost had us fooled that it was about to ignore this resistance and continue to advance higher.  After several failures to mount a sustained advance, gold succumbed to selling pressure by Tuesday. For the week, gold closed down $16 or 1.4%. Gold went to finish at $1,188 as of the final trade on the New York COMEX on Friday.   

Although gold spot price did push above the $1,200 figure marginally, the message of the market here is of sellers who showed up every time gold attempted to make some distance above the round number. We can thus update our original gold chart below, with Initial Resistance labeled as $1,200 – $1,215.

 

Primary Gold Chart

 

Our short-term expectations for gold continue to call for lower prices. At the same time, we can tentatively draw a new trendline between the December 2015 level and the higher December 2016 low, as shown above in blue (dashed).

It would be a powerful action to see the new trendline tested and held for a second time at a nominally higher level, such as $1,130 – $1,135. This is where gold would meet the trend if it were to test it this week.

Gold’s Long-Term Basing Perspective

Backing out the timeframe, periodically it is beneficial to strip away previous annotations and start with a blank chart, to gauge the big-picture trend of the market.  Below is gold from 2011 to the present, with minimal annotations near the current price – instead of with a focus toward the dominant pattern developing over the last five years:

 

Gold Long-term Perspective

The weakness since July is emerging here in gold as a five-year “cup” base pattern. This basing pattern features multiple swings of $300 higher and lower in both directions – but as a sum, we are observing a clear rounded bottoming pattern, with a reduced rate of decline from 2013 – 2015 now giving way to the beginning of an advancing market.

Strong evidence for the shift in trend comes from the fact that the 2016 high of $1,378 exceeded both the 2015 high of $1,305 and the mid-2014 high of $1,345. Lower peaks define a bear market – and when a new height, such as that seen in 2016, exceeds a prior one – it is telling us that the market is in the process of changing behavior.

Anticipating Short-Term Potentials

Of course, these changes take time to play out and fill with wild short-term gyrations. The question that we still cannot definitively answer is: was the recent December 2016 $1,124 low the bottom for the entirety of the correction off 2016’s peak?

The above base scenario assumes that it was – and if so, after a somewhat higher low due to form within the next few weeks, gold should continue two-steps forward, one step backward advances through the remainder of the year to re-challenge the 2016 high at $1,378.

However, let us imagine that the recent low does not hold and that gold continues to grind down further for several months – retesting the 2015 bottom in the vicinity of $1,045. The two hypotheticals are presented below through the green target callouts:

 

Gold Short-Term Potentials

 

Neither of the above two scenarios would change the validity of the basing action we are observing in the long-term cup formation above. If a double bottom or a grind below $1,100 in gold must occur, it will only expand out the timeline of the basing formation, not change the overall pattern.

Buyers should note the importance of the high in 2016. This is amidst a lessening rate of decline over the three years prior. (large red circle, above). This market is in the process of changing its trend after the 2011 – 2015 decline. It is only the precise gyrations that remain to be seen and navigated.


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. The CIA 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. Both of them based 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. Helped to identify both long-term market cycles and short-term opportunities for profit.

One Comment

  1. My only concern with this analysis ignores the possibility that the rally from the Jan. 2016 low occurred in three waves, versus the “five” required for an impulse wave. As a result, it’s more likely this “3” represents wave “A” of an A-B-C upward correction of the downtrend underway since 2011, with wave “B” still underway. Once complete, wave “C” should be another rally wave. However, if wave “B” bottoms at a new low, then wave “C” will not exceed the high of wave “A”. In our view, it will take several more years to complete the correction that should set the stage for an impulse advance to new highs, though we are confident it will eventually occur. Our short-term concern rests with the rally into January 2017; a typical topping month since the early 1970’s. Couple that with what seems to be excessive bullish attitudes and you have the ingredients for another short-term bloodbath. Having said all that, I still think metals belong in EVERY portfolio, like homeowner’s insurance.

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