Gold: The Past Years Are Often The Best Guides

As we know, history tends to rhyme. It’s never the same, but when you zoom out, the bigger picture often looks very similar. What does it mean for gold?

Short-Term Implications

With gold’s back-and-forth price action mirroring its behavior from 2012, the yellow metal is likely destined for devaluation. Back then, gold zigzagged with anxiety before suffering a material drawdown. In fact, in early October 2012, it moved slightly above the initial highs right before sliding.

Moreover, while the yellow metal has bounced above its declining resistance line (the black line below), the price action mirrors gold’s behavior from early January. If you analyze the blue line below, you can see that investors’ optimism regarding gold’s short-term breakout quickly faded and the yellow metal sunk like a stone.

In addition, with gold’s RSI (Relative Strength Index) moving slightly above 70 before the January swoon occurred, an identical development is already playing out in real time. Gold seems to be insisting on repeating – to some extent – its 2012 performance, and – to some extent – its 2008 performance. Either way, it seems that gold is about to slide.

The reversal in gold took place after the metal moved very close to its mid-January highs and the 50% Fibonacci retracement based on the August 2020 – March 2021 decline.

The sizes of the current rally (taking the second March bottom as the starting point) and the rally that ended at the beginning of this year are practically identical at the moment. Just as the rallies from early 2012 and late 2012 (marked with blue) were almost identical, the same could happen now.

The March 2021 low formed well below the previous low, but as far as other things are concerned, the current situation is similar to what happened in 2012.

The relatively broad bottom with higher lows is what preceded both final short-term rallies – the current one, and the 2012 one. Their shape as well as the shape of the decline that preceded these broad bottoms is very similar. In both cases, the preceding decline had some back-and-forth trading in its middle, and the final rally picked up pace after breaking above the initial short-term high.

Interestingly, the 2012 rally ended on huge volume, which is exactly what we saw on May 19 this year. Consequently, forecasting much higher gold prices here doesn’t seem to be justified based on the historical analogies.

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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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