Gold: You Can Win A Battle, But Still Lose The War

Gold had a good day yesterday, but as it hits the $1,770 resistance line, it will be anything but easy for the yellow metal. The real test has begun.

And so, it happened. Gold moved right to its target level that seemed to be the max that it could reach, but that didn’t seem to be the most likely outcome. Just because it wasn’t the most likely outcome, doesn’t make it impossible. The “most likely” can happen all the time – after all it's only “most likely” not “certain” or “inevitable”.

Gold declined right after its triangle-vertex-based reversal, but it appears that the market participants didn’t want to give up on the bullish tone until gold finally reached its previous lows and highs.

Just like magnets, the strong support and resistance lines draw investors and traders, and it seems that we saw this play out once again.

Chart, histogramDescription automatically generated

Gold moved slightly above its upper border of the near-perfect flag (zigzag) pattern and this small breakout is not completed. This particular breakout is not even close to being as important as the fact that the previous very strong resistance held yesterday (Apr. 15).

Why? Because the level that was just reached – the $1,770 level – is the level that provided strong resistance in mid-2020 (several times) and it provided strong support in late-2020 and early 2021. These were mostly very important reversals, which make this price level particularly important.

Moreover, the current move higher to this level is symmetrical to what we saw in mid-2020. Consequently, even though this week’s rally might seem like a game-changer, it very likely isn’t one.

But miners moved higher, and they invalidated the breakdown below the neck level of the broad head-and-shoulders formation!

…Did they, though?

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Mining Stocks: GDX and GDXJ

The GDX ETF did indeed close yesterday above the dashed line that I used to mark the neckline of the head and shoulders pattern. One might view this as an invalidation of the breakdown, and thus a bullish sign. This doesn’t add up with gold’s inability to move above its critical resistance at $1,770, and we see that miners moved only to the line that’s symmetrical to the line based on the recent bottoms.

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Disclaimer: All essays, research, and information found above represent analyses and opinions of Matthew Levy, CFA and Sunshine Profits' associates only. As such, it may prove wrong and be ...

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Fiona L 3 weeks ago Member's comment

excellent analysis!

Przemyslaw Radomski, CFA 3 weeks ago Author's comment

Thank you!