Gold Update

Gold, Weekly

Almost a month ago, while Gold was still rallying strongly I wrote an analysis on Gold saying that it might have more upside in the longer run judging from the increased risk aversion in different asset classes but in the short run the upside is likely to be limited due to the channel top and 50% Fibonacci retracement being near. I said at the time that this could mean that the line of least resistance is for a change on the downside and traders could benefit from short exposure while (potential) correction takes place. I also gave a resistance area for sell entries and two target levels. Gold overshot my resistance area first but then started to consolidate giving short sellers several opportunities to enter in trades. My target one was reached while target two was almost touched and now market has moved back into my original resistance area and has consolidated there.

Gold is still trading near the upper end of the bearish channel but shows some resilience. Since April 2013 when price of gold dropped below the topping formation lows at around 1550 all gold rallies have been sold aggressively. Peaks have been sharp, with the price of gold dropping quickly after it hit a resistance. Even though gold is yet again at a resistance and Stochastics is in the overbought zone it seems to me that this time is different. Price has managed to move sideways for almost three weeks and has created a flag formation. This was helped by the fact that gold found support at October 2015 high, right where my target 2 was.



Gold, 240 min

In the four hour picture we can clearly see how price fluctuation has created a series of higher lows and higher highs. This far all of these have stayed below the upper end of the resistance area (1255.60) I defined in my earlier analysis. However, the fact that this market is creating higher lows means that traders have been willing to bid gold at higher price levels than before. Also, the fact that price has created higher highs tells us that those shorting gold have been forced to do so at higher prices than during the previous swings. This suggests certain degree of bullishness in this market while it means that the worries market participants have had about so called risk assets have not yet disappeared.

Conclusion

As the price of gold has been resilient in the face of risk on assets rising and has in the process created a flag formation that points to higher prices. The projection target based on the length of the flag pole is at 1434 and coincides with a high from August 2013. As I said earlier, since April 2013 all gold rallies have been sold aggressively. Peaks have been sharp, with the price of gold dropping quickly after it hit a resistance. Now things seem to be different as price has managed to move sideways for almost three weeks. This indicates that psychology has changed and gold should have more upside ahead.