Gold Price Forecast – A Correction is Supported

Friday’s COT report revealed commercial traders increased their net short position to near-record levels at -336,250 contracts; a firm warning this late a cycle. That, combined with technically overbought conditions, submits gold is approaching a level compatible with previous tops.

As a technician, I like to scan the charts for relevant correlations. Looking at the 2002 breakout in gold, I found compelling similarities between then and now. With this as a guide, I see the potential for a spike high and bearish reversal.

THE 2002 BREAKOUT: After building multi-year base prices broke out above $330 in 2002 and confirmed a new bull market. The initial rally surged and temporarily spiked above the bear market inflection point ($380) before entering a multi-week correction.

THE 2019 BREAKOUT: Like 1996 through 2002, we have a multi-year base followed by a bull market breakout. The initial surge is underway and approaching the 2013 bear market inflection point at $1550. We could see a quick spike above $1550 before entering a multi-week correction.

In summary, gold is in a new bull market, and prices are testing the bear market inflection point near $1550.

The commercial traders (smart money) are well-positioned for a correction. The technicals are overbought, and a multi-week pullback is justified. A volatile spike above $1550 that reverses swiftly could mark a top.

AG Thorson is a registered CMT and expert in technical analysis. He believes we are in the final stages of a global debt super-cycle. For more information, please visit here.