Gold - Are You Scared?

by: Nikhil Gupta


- Gold is less than 3 percent off from its recent highs.

- The bull market is still intact.

- Continue to accumulate on dips.

 
Gold continues to extend its pullback from near $1300, worrying the investors that the good times may be behind them. In this technical analysis article, I hope to ease their concerns and provide some important levels to watch out for. The decline does not perturb me and I believe that it is a welcome dip.
 
http://thecrux.com/wp-content/uploads/2017/04/gold-bull-feature-img-670x354.jpg
Source: thecrux.com
 
 
In the past several of my articles on gold, I had said that I would make sure to update my readers and followers if a threat emerged to the bullion rally. With the recent correction disturbing some investors, I think now is as good a time as ever to provide an update.
 
First, let us consider the action in the gold futures market on a daily basis. The price chart submitted below clearly reveals that the precious metal is cooling off after an extended rally and is about to test its previous resistance zone of $1260. I expected gold to cross $1300 before shedding some gains but the profit-booking was too strong. In its entire run-up from December 2016 low of $1130, gold has provided investors with intermittent opportunities to go long and achieved higher tops. At the current level of $1263, gold is not only close to the strong support near $1260 but is likely to receive multiple cushions from the 30-day, the 50-day, and the 200-day SMAs at $1263.32, $1249.45, and $1256.67 respectively. The downside looks limited on the daily charts.
 
 
Source: TradingView
 
 
The classic bullish structure is explicit on the weekly gold futures price chart and shows the metal retreating from the medium-term resistance trendline.
 
 
Source: TradingView
 
 
But, can we really overcome the selling pressure near the psychological level of $1300? I believe that given due time and patience, we can definitely cross this hurdle and head higher. To present my case, I would like to discuss the action in the following monthly gold futures price chart.
 
The 10-year price chart has been marked to show what is really happening in Aurum. Even a cursory look at the chart is enough to comprehend that with time, the support for gold is only shifting higher.
 
This multi-year support trendline was nearly tested in December 2016 and since then, the precious metal has sharply bounced back gaining approximately 15 percent in the last 4-5 months.
 
Unfortunately, the upmove has been curtailed by the downward sloping long-term resistance trendline which has been formed by joining the 2011- and 2012-peaks. Generally, the market respects the long-term trend more than the short-term trend which in this case happens to be in the favor of the buyers.
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Source: TradingView
 
 
Another point to note from the above monthly chart is that the range has contracted significantly for gold and that a breakout will likely occur this year. Unless the classic higher-top, higher-bottom pattern is violated decisively, there is a strong probability that the breakout will occur on the upside. If this thesis plays out successfully, we can reasonably expect levels of near $1400 this year which would also mark the beginning of a fresh bull run in gold as I discussed in my last article.

Having stated what was important to know from a technical standpoint in gold, I think the same bull case can be made for the underlying ETF, the SPDR Gold Trust ETF (NYSEARCA: GLD). Bearing the brunt of a decline in gold price, the ETF has failed its earlier breakout on the daily price chart and is now near its support level of $120. While the 14-day RSI reading has reversed slightly, the 14-day Money Flow Index is surprisingly strong at 69.69.
 
Source: TradingView
 
 
Conclusion
 
What is immediately required from the gold and the GLD investors is that they do not panic in this minor pullback (we are less than 3 percent off from the highs!) and see it as an opportunity with a long-term perspective in mind. Having returned approximately 15 percent since the December lows and following the higher-top, higher-bottom pattern, it is not unimaginable for gold to take a breather before it crosses the multi-year hurdle marked on the monthly price chart.
 
Once again, I say that this is simply my interpretation of the price action. Others can see things very differently. If you agree with my analysis, or if you have a different opinion, then please discuss in the comments section. I would love to read contrarian views.

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