It's been awhile since I posted my last gold update in October. I haven't written about gold because everything was going by the plan: gold fell right after the post and even hit a new low making bears happy. I expected to wait for the week of the 29th of February as it was my time target in that update. But gold's price overshot the recent high which was the starting point for the last drop towards the new bottom invalidating the experiment.
Below is the chart from my earlier gold post to refresh your memory. I added blue call-outs with some new comments to show where it went wrong.
Chart 1: Updated Experimental Gold Chart
Chart courtesy of tradingview.com
I shadowed the part of the chart before the post date (October 22nd) to highlight the progress of the price. Gold quickly plunged down from the post date. It went all the way down with the largest drop in November and hit a new multi-year low at the $1046 level at the end.
The price then reversed up and it was by the plan that we should have zigzagged to the upside and then had another drop down (highlighted in red arrow). In the middle of January, gold charted a bearish red candle right below the red arrow pointing at the planned reversal to the downside, but the shadow beneath the candle showed that bulls repulsed the attack and the market closed higher. By the end of January, the price finally broke above the red arrow and rocketed both above the upper trend line and the previous high.
That move crashed the model and we should consider the experiment a failure ahead of the time target (February 29th) as the chart structure became invalid.
Further, I've prepared a new chart for you to read and take some clues from it.
Chart 2 Gold Monthly: Another Drop Is Ahead If February Fails
Chart courtesy of tradingview.com
The trend is still down and we should wait and see if February can crack it to the upside. I've added 3 red arrows inside of the trend channel to show the main structure of the moves in the channel. Once the market breaks above the channel we should watch closely for further price development, but there is no alert for the bears unless the price closes above last January's high of $1308 (black dashed horizontal line). We will have enough time to get ready for a reversal.
But if gold fails to crash the downtrend, then we can see another good drop pointed by the third red arrow to the downside of the trend in the $900-1000 range.
The AB/CD concept shows that the CD segment advanced for more than 1.618 times of the AB segment (below the $1150 level, not shown). The next Fibonacci ratios are 2 and 2.272 located at the $998 and $890 levels accordingly. This coincides with the third red arrow target area. In the left part of the chart I've highlighted four rejected tops to show you the price guidance for the possible new bottom, will it be the last, God knows, let's live and see.
Gold is a top rival of the US dollar. The current chart structure shows that the chances of another dollar rally are high as it's in a large correction (more than 1 year already) inside of the 92-101 range (Dollar index chart). This tells me that another price drop of gold is ahead.
INO.com Contributor, Metals
Disclosure: This contributor has no positions in any stocks mentioned in this article. This article is the opinion of the contributor themselves. The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. This contributor is not receiving compensation (other than from INO.com) for their opinion.