Gold pulls back slightly today as it drops below yesterday’s low of 2,035 and it very well may close weak, below yesterday’s low. Wednesday’s high of 2,052 completed a 13.3% rally from the October 6 swing low, so it wouldn’t be surprising to see two or more days of a pullback before gold is ready to continue its uptrend. Nevertheless, once a retracement is complete higher targets remain valid.
Two-Day Retracements the Norm
Note that there has only been one retracement of more than two days since the October bottom. This reflects strong upward momentum during the advance. Given the pattern of two days of rest before the trend continues to rise an upside continuation signal has a good chance of occurring after Friday. In addition, if the current retracement goes longer than two days it will indicate a slowdown in the momentum and may lead to a longer retracement or consolidation period.
Fibonacci Support Areas
If weakness continues in the near term, a retracement to the prior swing high of 2,009 looks possible. It is joined by the 38.6% Fibonacci retracement level at 2,006. Lower down is 50% retracement at 1,992 and the 61.8% Fibonacci retracement at 1,978. Each marks a potential support area.
Monthly Bullish Breakout Confirms Strength
Gold triggered a bullish breakout this month on the monthly chart and strength will be further confirmed once the month closes today. November will end with the highest monthly close on record for gold. Since the bullish monthly signal further confirms today, the potential for a continuation of the bull trend becomes more likely.
Set to Bust out of Long-term Base
Since the 1,921-trend high in September 2011, gold has been forming a large basing pattern. It is not a perfect cup with handle pattern, but it is similar. Nonetheless, a decisive breakout above the high of the pattern is bullish on a long-term basis. The prior high was at 2,082 from May of this year. Once exceeded to the upside, initial targets are at 2,131, 2,184 and the 2,250-price area. Depending on the characteristics of the retracement that just began, recent prices may be the lowest they will be until new highs in gold.
Bruce boasts over 20 years in financial markets, holding senior roles such as Head of Trading Strategy at Relentless 13 Capital and Corporate Advisor at Chronos Futures. A CMT® charter holder and MBA in Finance, he's a renowned analyst and media figure, appearing on 150+ TV business shows.