Gold Technical Analysis

Gold had another significant move today (+2%) and has quite a nice rally that began in late-May.  However, this move may have limited upside and could be in for a corrective wave lower before making new highs again in early 2020.

Gold, like copper, can be used as a sentiment index to see how investors feel about the economy.  Gold is often referred to as a fear index.  If investors are fearful of economic instability or inflation, they will purchase gold as a hedge, or protection.  If investors believe all is hunky dory in the economy, gold will get little attention and retreat lower.    Below is a technical take on the gold futures market.

Forecast: Gold will see a three-wave correction (A-B-C) in wave 4 back to the $1,425-$1,460 area that should last 2-3 months.  Subsequently, we then should see a rally in wave 5 of c of (b) to the $1,580 to $1,630 area.  Based on other technical indicators at that point, we can decide if that that level is an interim, or longer-term top.

Advice:  Picking tops can give you bloody noses.  To fade this tiring rally with good risk-management skills, it would be wise to wait for a 5-wave decline on an hourly chart, followed by a 3-wave rally.  This increases the chances that the current uptrend is indeed pausing and will retrace in wave 4 of cThat way you will avoid getting steamrolled by a bigger than expected wave 3 rally.  It is good risk-management practice to do so.

Explanation and charts with evidence below.

Expectations are for a wave 4 pullback (wave 4-circled) back near the $1,400-$1,455 area. This area is the span of the previous 4th wave of one lesser degree—an expected target.  (Note: $1,458 is a .382 retracement of wave 3-circled and $1,425 is a .500 retracement).  This retracement should last about 2.5 months (see pink, dotted trend lines), as did the corresponding wave 2-circled correction.  Once that is complete, it can be expected that gold make another push higher in wave 5-circled of c of (b).  If the length of the wave 4 pullback holds true as forecast, I would put the final upside target in the range of $1,580-$1,630.  This area has a nice Fibonacci cluster.  That is the following:

  • $1,580 is where wave (b) is a .618 retracement of the wave (a) decline (weekly chart).
  • $1,619 is where wave c = 1.382*wave a (weekly chart).
  • $1,595 is where wave 5 = wave 1, if wave 4 is a 50% retracement (weekly chart).
  • $1,629 is where wave 5 = wave 1, if wave 4 is a 38.2% retracement.
December Gold Technical Analysis
The double bearish divergence and breach into overbought territory are strong signs of an impending reversal.

Things to notice on daily chart as evidence for wave count and forecast:

  • Double Bearish Divergence in Momentum and Price (good at forecasting reversal)
  • RSI was in overbought territory twice with divergence and has not gone below that overbought level (very indicative of imminent reversal)
  • Wave 3-circled has traveled the expected 1.618 multiple of Wave 1-circled.
Gold Technical Analysis
RSI is a concern on both the daily and weekly chart, and momentum suggests that we may see one more new high.

Things to notice on weekly chart as evidence for wave count and forecast:

  • RSI is in overbought territory (can be precursor to reversal)
  • Wave (b) has retraced a near .618 of the wave (a) decline
  • Momentum suggests we should see another new high in the future on less momentum (that would be wave 5 of c of (b).