Two weeks before Christmas I posted the Gold & Silver update, where I asked you about your hopes for the traditional precious metals Santa Claus Rally at the end of 2017. The apparent answer those days was “No” as there was a severe weakness in the market and the price of the top metals was hitting another low. Let’s see in the poll results below what you were hoping would happen.
Chart 1. December 2017 poll results
Poll courtesy of INO.com
And to no one's surprise, most of you expressed hope for a Santa Claus Rally. Bingo! A Christmas miracle came into the market the next day after the post was published to push the price of the top metals to the upside erasing almost all of the previous losses.
In the updated monthly chart below I would like to add a technical touch to this fairy tale.
Chart 2. Gold Monthly: Pattern In The Pattern
There are two patterns in the making on the chart above. The orange triangular consolidation was detected in my October post with a monthly chart update. The price of gold correctly copied the trajectory set by the red zigzag inside of the triangle in that same post. It moved south first and then when the RSI reached the 50 level, it reversed to the north to almost achieving the triangle’s resistance at the $1360 level this month. The next move could be a drop if gold wouldn’t crack the triangle’s upside as it happened last September, although the RSI still favors the breakup.
In case the upside momentum would keep its track and price would break up the triangle I added the black trendline resistance (parallel to the triangle’s downside) to the upside to show the possible path for further price growth. I also added the magic Fibonacci retracement levels from 38.2% to 61.8% for a sharper picture. You can see in the chart above that the 38.2% level at the $1381 has already been in the game as it stopped the very first bull attack started two years ago.
What is right about triangles? They consolidate the opposite market forces reflecting the struggle between them and you could join the winner’s euphoria once the market breaks either side of the pattern. The other side of triangles is the time consumption. We already spent more than two years in the same area, and it tries our nerves.
Another pattern, which is larger than the triangle is the potential Rounding Bottom formation (blue). It prepares the base for a possible run-up of the gold price once the Neckline at the $1434 is broken. The target for this pattern is located at the $1823, and it looks quite ambitious, but it was set by the cold calculation of the depth of the bottom (Neckline minus Bottom) added to the Neckline price.
Easier said than done; there are some substantial barriers on the north path. The first is the triangle’s upside fortified with the 38.2% Fibonacci level in the $1360-1381 area and the Neckline itself, which was already named. In case of a failure, the previous major low around $1045 could be revisited and tested.
This was an update with a bird’s eye view to start the year, and I will update lower time frame charts for you in the coming posts. Stay tuned!
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.