There are traders and there are investors. This article is not for traders, as trading requires particular methodologies. We try to explain in this article at which price levels gold investors should start worry. We do so based on basic chart analysis.
It is a common misunderstanding from gold bulls to deny charts arguing there is manipulation. We do not disagree there is manipulation in today’s precious metals market. We have even documented it in great detail (for instance here and here).
On the other hand, it is not possible to get a view on a market or an asset “excluding” manipulation; in other words, there is no way to “filter out” manipulation and see what that market or asset looks like. That is why we believe charts still provide the best pieces of information to get an understanding of trends, both long and mid term (the short term charts, however, are for traders).
Below is the long term chart of gold. It is the weekly chart since 2004, the year in which the uptrend started to accelerate. Charts contain a lot of information, but it is mandatory to know how to read charts.
What can we derive from this particular chart?
- First, gold is still in a secular uptrend although the mid-term trend is down.
- Second, a triple bottom formation is being developed “as we speak.” If gold will not break below $1,180 in a significant way, then we have a successfully tested triple bottom; if that price point does not hold, however, gold is probably going to form a new trading range at lower than current price levels. So the first key price point to monitor is $1,180. Mind that breaching that price point should be visible on a weekly price chart, not a daily or chart on a lower timeframe.
- Third, the blue lines provide valuable information about gold’s uptrend. One uptrend line started in 2005/2006 and was breached last year. The other uptrend line started in 2004 and is still intact. The price level to watch is $900 to $1,000, again on the weekly chart. Mind that, as time passes by, the price points related to this uptrend line will increase.
- Fourth, a previous consolidation area is indicated by the green area. It took gold more than 2 years to break through that level. Past resistance becomes support, that is why the $950 to $1,000 price area is an important support zone. Coincidentally, this is the same price area as indicated with the blue uptrend line.
- Lastly, every market has typical price patterns. The most basic price pattern is an uptrend or downtrend. We do not believe investors need complex Fibonacci and Elliot Wave analysis. We believe that the basic abcd patterns carry sufficient market information.
Gold’s “ab” upleg pattern is clearly visible in the chart. The billion dollar question is what the “bc” leg will be. In that context, which price points are potential candidates for a point “c” in the abcd pattern? Those price points are indicated with red circles, i.e.
- $1,150
- $1,050
- $700
In other words, even if gold would go as low as $700, gold bulls should not be concerned. It becomes very unpleasant for gold bulls when gold would structurally dive below $700. For now, however, the price points indicated above $1,000 should be of a primary concern.
Taki Tsaklanos – GoldSilverWorlds
Precious Metals Contributor – Future Money Trends