For the week in sum, gold finished lower by $2 (0.1%) to close at $1,333. This is as of the final trade on the New York COMEX as of Friday afternoon. As always, the COMEX is a futures market. Spot prices will typically be a few dollars less than the futures prices. Also, physical prices will still be 3%+ more depending on the product. We expect with the highest probability that an interim peak is now forming. A decline should bring gold back to within the green shaded zone under $1,300 by late Q1 – Q2.

gold chart

Over the very short-term, we see hints of the top now coming into place via a break. This is below the rising trendline which defines the advance out of the December bottom. Note how gold breaks the trend on January 17 (red callout). Then, to retest it from the lower side on January 19 without success. Gold could continue to hug the broken trend and grind marginally upward. However, this signature tends to mark the transition to interim peaks:

gold chart

With all this in mind, we can calculate the Fibonacci retracement levels inclusive of the entire December – January advance. It helps to identify likely targets for the coming retracement. The levels to watch for are identified below in the silver color:

gold chart

  • 38.2% retracement – $1,304
  • 50% retracement – $1,291
  • 61.8% retracement – $1,279

On a Change in Gold’s Disposition

A final technical observation for this week. Since the 2015 bottom, gold has seen a series of significant advances and sharp corrections. This happens every 1-3 months on average. This type of price pattern has caused whiplash among many investors. Hence, it’s a term we use to describe the inability for individuals to continue to participate in a market due to volatile price swings.

As a trader, I have come to expect these sharp swings in gold every few months.

Yet, as a student of market history, I know that when I generally expect specific behavior, markets are typically ready to surprise me by behaving differently. Could the next surprise be one of lower volatility than we know?

For example, can we fathom that in a correction, gold may fall back to the 50% Fibonacci retracement at $1,291? Not with a quick drop followed by a rapid rebound, but instead in a slow grinding manner lasting several months? Equally likely, the rise out of the pending low may feature a low-volatility advance.

Short-term traders, especially, should consider this proposition. Tradeable swings may not be as frequent over the next few quarters. Especially not as they have been over the past two years.

Takeaway on Gold

This market has seen major surges and retracements since 2015. Market behavior does not stay the same forever. Especially when most are expecting dramatic moves in either direction. This may be the time when gold fools the majority by changing its disposition for some months. This is just before the vital break of 2016 highs that we are expecting later this year.

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

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