Originally published by AxiTrader
Key Takeaway
Gold has been mapping out some perfect technical patterns over recent months.
Overnight we saw a continuation of this trend with the price of gold in US dollars pulling back to test the break out level from last week.
That sets up a nice chance for a look at the charts and what they suggest for gold going forward.
What You Need To Know
Gold bottomed in late 2016 around $1122. That was just a couple of dollars below the 76.4% retracement level of the 2015/2016 rally. That is, 76.4% in the fibonacci sequence is the ratio of the numerator which proceeds the denominator by three spots in the series. For example 21/89 or 34/144.
Since finding support at this last line of defence gold has rallied in a series of neat technical moves.
- The initial pulse to $1219 satisfied the 38.2% retracement of the high of 2016 to low around $1122;
- The pullback into the low $1180 region was then a 38.2% retracement of that rally;
- Gold subsequently rallied to $1219/20 again, made a high of $1225 before falling to test trendline support;
- It then broke $1219/20 running higher with this trendline until it broke, was retested and reject; and
- last night gold almost perfectly test it's breakout level at $1219.
It's an amazing example of almost perfect execution of technical parameters and expectations. Although it has yet to satisfy my own expectation of a test into the $1248/57 region - a confluence of the 138.2% projection and a 50% retracement of a larger move.
So what's it mean now?
That is a very interesting question. But it is one which also suggests the $1219/20 region is once again the key area of support. It's also the breakout level - so it's important.
When I look at my daily charts the system I use is short gold and has been since the break of the trendline late last week I mentioned in my daily note.
Naturally the key is whether gold can hold the $1219/20 level short term.
Below that gold's support zone is getting very congested in the near term and the $1212/16 region now looms large as to key to whether or not gold could retrace all the way back to $1180/90 or is headed up to $1250 and beyond.
Have a great day's trading.