After Your Recent High - Where To Now, Gold?

Gold is suffering a hang-over after it’s early January highs, while the EUR/USD pair is buckling - so when gold declines, where will its bottom be?

After injecting itself with Janet Yellen’s stimulus sentiment, gold came down from its highs on Friday (Jan. 22).

And like the GDX ETF, it’s important to put gold’s recent run into context. For starters, gold is still trading below its August declining resistance line, it topped at its triangle-vertex-based reversal point (which I warned about previously) and the yellow metal remains well-off its January highs.

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Figure 1

Looking at the chart below, we can see gold approaching the upper trendline of its November consolidation channel.

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Figure 2

I marked the November consolidation with a blue rectangle, and I copied it to the current situation, based on the end of the huge daily downswing. Gold moved briefly below it in recent days, after which it rallied back up, and right now it’s very close to the upper right corner of the rectangle.

This means that the current situation remains very similar to what we saw back in November, right before another slide started – and this second slide was bigger than the first one. I wrote about this previously (Jan. 21), saying that there’s a good reason for gold to reverse any day (or hour) now.

And what happened last Friday?

Well, gold fell by 0.52% as the Yellen-led intoxication began to wear off. Gold also continues to decline in today’s pre-market trading, despite a small move lower in the USD Index.

Also adding to the upswing, one of the most popular gold indicators – the stochastic oscillator (see below) dipped below 20 last week. Itching to move off oversold levels, the yellow metal responded in kind. However, if you analyze the green arrows below (at the bottom of the chart), you can see that the first green arrow has a red arrow directly above it (marking gold’s November top).

Currently, the stochastic oscillator is right near that level, and with November acting as a prelude, the yellow metal could suffer a similar swoon in the coming days or weeks.

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Figure 3 – Gold Continuous Contract Overview and Slow Stochastic Oscillator Chart Comparison

Back in November, gold’s second decline (second half of the month) was a bit bigger than the initial (first half of the month) slide that was much sharper. The January performance is very similar so far, with the difference being that this month, the initial decline that we saw in the early part of the month was bigger.

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Disclaimer: All essays, research, and information found on the Website represent the analyses and opinions of Mr. Radomski and Sunshine Profits' associates only. As such, it may prove wrong ...

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Old Time Investor 1 month ago Member's comment

Your gold articles are always excellent and thought provoking. Thanks.

Przemyslaw Radomski, CFA 1 month ago Author's comment

Thank you - I greatly appreciate your kind comments. Please note that some of my articles are posted on my website only (exclusive), so I encourage you to visit it as well.

Old Time Investor 1 month ago Member's comment

Thanks, this is my go to site to start my day, but I'll check those out as well.