Recently, I was looking for my school notes amongst my old stuff for my eldest daughter to help her understand chemistry as my school teacher was a real fanatic on this subject. During the process, I found many things with memories from my youth, and it prompted me to call my old friends and discuss those handwritten letters that we used to send by messenger. We couldn’t have ever imagined that the digital era would come.
Quite often things from the past can help us today. I decided to dig deep into the past on the gold chart to understand what is happening with our frozen gold market these days. Bingo! He who seeks shall find.
Below is the chart with my annotations to illustrate the findings.
Chart. Gold Quarterly (Logarithmic): This “Vinyl” Could Play Again
First of all, I would like you to pay attention to the word “Logarithmic” in the chart title, which is usually abbreviated as “Log” in the chart options. It means that the Y-axis of the chart has log scale, which is nonlinear and commonly used for the broad range of the data.
Indeed, gold has the wide range of the price data as it was very volatile between really low digits above $200 per troy oz and the one thousand in the distant 80’s. That’s why the right step was to switch to the log chart, which I usually avoid for the short-term chart as linear scale gives more price accuracy when we build the trends. So what changed when I pushed the “log” button? You can see the outcome in the chart above; the old consolidation grew in size as before on linear scale it looked negligible as the lower numerical order digit on the linear range is very small.
This approach lets me have a good look at the chart structure of the previous consolidation (blue box) as it now shows up like an elephant compared to the current consolidation (orange box). This finding gives us several clues for further market behavior. And I would like to start from the straight one.
As I mentioned above, the current consolidation on the log scale looks much smaller than the earlier one. For me, it means that the next move up will be much smaller on the log chart and most probably it would finish the uptrend as the power of the trend would get exhausted based on the amplitude of today’s consolidation. Again, the growth could be quite big on the linear scale in simple digits, but the growth structure will be relatively smaller than what we had before the current consolidation.
Another discovery has yet to be proven by the time as we now have similarity between the first halves of both boxes. Let us go inch by inch. At the start of each box, we have a down-up-down zigzag, which brought prices down heavily from the tops. As it is a complex correction, then we should have a junction (counter-trend correction) between the two downside zigzags; it emerged in both boxes (green smile). I highlighted with the black down arrow our current position from the orange box in the blue box for you.
It looks like we are approaching the highest point in the counter-trend correction (green smile). You can see for yourselves that the second zigzag of it is also lower than the first one in both boxes, amazing! Although the weekend missile strikes in the Middle East could push the price beyond the previous top at the $1375.
What’s next? If this similarity persists, then we should expect another zigzag down as highlighted with the red curved arrow. In the blue box, it hit slightly below the previous low ($250 level vs. $280 level or 11% lower). In the current orange box, we could see the dip below the crucial $1000 in the $900 area.
In this post, I highlighted the chart structure without examining the price levels as I told you before that if we can detect the structure accurately, then we could get ready for the next step of the market, which is more important for strategic positioning. Let us see if these old “vinyl records” play again.
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.