The pain continued for gold and all precious metal investors this week. Let us examine the facts as they appear in front of us. This examination will better prepare for the next potential advance in precious metals when they begin their path to recovery.
It is increasingly certain that the process by which gold will emerge into the next bull market is going to take a more circumventive route than we originally wished for. The technical damage done to the charts over the past several weeks will take time to repair. These signals suggest that something is shaking up the metals markets below the surface.
From a technical analysis, we cannot know exactly which fundamentals are causing the breakdowns in gold and silver. A surging stock market, manipulated and/or legitimate US dollar strength, and US/Chinese/Turkish tariffs can contribute to the sell-off in commodities. Sometimes trends are not impacted by fundamentals at all. They can simply be reflections of the psychological state and herd behavior at the given time.
Still, in the world we live in prices are what ultimately matter, and we will place our focus there. Technical analysis can show us warnings which are evident before any major news item is released.
Gold Short-Term
For the week, wealth fell by 2.9% or $35. Closing at $1,184 as of the final trade on the New York COMEX futures market as of Friday afternoon.
Gold sliced through its minor support levels at $1,215 and $1,195 this week (light black dashed lines) with only minor pauses.
Gold is now trying to recover from the last minor support level at $1,180 identified above (black). Buyers emerged on the intraday dip below $1,180 on Wednesday into Thursday. This increased the possibility that this level will hold over the short run and the recovery rally will begin.
Watch for a Retest of 2015 – 2016 Bottom Zone
The downward trend observed over the past several weeks is unsustainable. For example, gold has fallen $200 in the past four months in nearly a linear fashion. Markets never move in straight lines for long. Such swift declines will typically precede at least a short-term recovery rally in metals.
A likely target for a short-term recovery is the now-broken primary 2015 – 2018 downtrend (blue), which comes in at $1,256 and rising.
Despite our expectation of a recovery, the technical damage done to gold strongly suggests that it will not be able to sustain this level. Gold will have to exceed the $1,256 figure on a weekly basis to show that the trend has changed.
Barring such an unlikely feat, we believe that the pending rally will ultimately top out and gold will make a subsequent lower-low into the vicinity of its 2015 – 2016 Bottom Support Zone (black), which exists below $1,124. This is our highest expectation as the market proceeds into 2019.
The potential will then be for gold to make a functional double-bottom with its 2015 low. The final low price could be marginally higher or marginally lower and still constitute a functional double-bottom. We will be watching for a bottoming pattern to emerge as this zone below $1,124 is approached. Along with monitoring concurrent signals in the gold/silver mining complex in order to increase the odds of identifying the turning point.
As hard as it may be, we encourage you to regularly monitor these trends even as the price is declining, to stack the odds in your favor for timing future purchases.
