On the 6th of January, gold had hit the second target of $1577 that I showed you last June when we measured the depth of gold bugs love. I will update the big chart for you below to show why this second target is crucial. By the way, this target was the most favored then as you can see in the graph of ballots below.

gold poll

It’s a real miracle that we witnessed the Santa Claus Rally again this year. I updated the short-term chart for gold right ahead of Christmas as I thought the correction would extend itself to delay the rally for a later period. The invalidation point for the bearish scenario was set at $1516 as the price moved almost $100 above that point for someone’s benefit.

gold poll

Most of you voted for the immediate rally as you didn’t expect another drop, and you were amazingly right, again!

I think it’s time to check big charts to adjust our short-term navigation plans.

monthly gold chart
Chart courtesy of tradingview.com

This is a standard monthly chart above with a virtue of simplicity. I shared it with you last August when the price hit the first target of $1490.

Gold is still in a significant pullback that consists of two legs up. The second target coincided with a contact point of the second leg of a pullback around the $1580 mark. Besides that, it amazingly intersected with a 61.8% Fibonacci retracement level and moreover, it was between the 1.272 and 1.414 Fibonacci ratios for the second leg.

The question is whether it was enough for this pullback to unfold as it perfectly retested the broken orange trendline and reached the critical 61.8% Fibonacci retracement level. The future will tell it for sure. In the summer of 2016, we already saw how the price managed to throw over the broken trendline by almost $80 when the first leg to the upside unfolded. Such a jump could be enough to reach targets #3 at 1.414 ratio ($1624) and #4 at 1.618 ratio ($1690).

The RSI has shown the first alarming signal. The recent rally didn’t establish a new high for this indicator as it did on the price scale. The month is yet to finish, so watch it carefully to see if gold can update the indicator’s maximum. The RSI divergence is not the selling signal itself; it just warns us of an upcoming change in the trend. Another price maximum could still be established ahead of a reversal to make the divergence more visible as long as RSI is above 50.

Let’s continue in the weekly chart for more details.

weekly gold chart
Chart courtesy of tradingview.com

This weekly chart perfectly displays the power of the trends. As we can see, the upside of the blue uptrend channel restrained the recent gold rally to the tick as the price reversed right on the line.

I added targets #3 and #4 on the chart for you to visually feel the possibility of the gold price to hit it. In my opinion, the overall structure of the whole second leg of pullback, which is contoured with a blue uptrend channel, has more chances to reach target #3 rather than target #4.

Currently, the price is in a correction, which could reach the orange trendline support in the $1515-1520 area. And then, the last move up fueled with euphoria could break out to reach the target #3 (green zigzag) to exhaust there.

I switched on the mid-channel (red dashed) for you to see the border where the downside move could start.

The RSI on the weekly time frame already shows the Bearish Divergence as lower peaks on it contrasts with a higher high on the price chart. The breakdown below the 50 level would initiate the reversal to the downside along with the capitulation of the mid-channel support, but it is yet early to ring that bell.

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Intelligent trades!

Aibek Burabayev
INO.com Contributor, Metals

Disclosure: This contributor has no positions in any stocks mentioned in this article. This article is the opinion of the contributor themselves. The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. This contributor is not receiving compensation (other than from INO.com) for their opinion.

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