It’s a Very Merry V Formation in Gold

Gold prices have seen moderate gains on the day, adding to the recent gains over this last week. Gold values have increased by approximately $30 over this last week, given that the lows exhibited on Tuesday took pricing to $1238 per ounce.

As of 3:30 PM Eastern standard time, gold futures are currently fixed at $1268.50, a net gain of $4.30 (+0.33%) on the day. Spot gold is currently fixed at $1264.50 which is a net gain of $3.20 on the day. On closer inspection, we can see that today’s gains are composed of three parts: two-parts corresponding to a weaker US dollar (+$2.30) and one-part buyers (+0.09) bidding up the precious yellow metal.

The net result of this last week’s price action is confirmation that last week’s intraday low at $1238 was, in fact, the end (at least for the short term) of a sustained correction, which began in September of this year when gold prices topped out at $1363 an ounce.

As a market loses value and drops in price, one of the patterns technical traders look for is the formation of a “V” bottom in price action to indicate the conclusion of a correction. This occurs when prices drop sharply, and reverse sharply. Another type of price reversal is a rounded bottom, which can take more time to unfold than the “V” bottom.

These pivot points are commonly referred to as a “key reversal.” They all indicate that the former bearish sentiment which drove prices lower has run its course and market sentiment has shifted into a more bullish demeanor.

As such, a case can be made for the identification of a solid key reversal in gold pricing that occurred on Tuesday and Wednesday of last week. More importantly, this reversal could be the indication that a long-sustained rally in the precious metals is just getting underway.

Since 2014, technical traders including myself have identified a distinct and strong seasonal tendency in gold pricing. It seems that gold prices tend to drop as a calendar year comes to a conclusion, and then begins to have a sustained rally from those lows.

At the end of 2013 gold prices were under dramatic pressure, trading to a low just above $1100 per ounce. By March 2014 gold recovered trading to a high just below $1400 per ounce. Gold prices hit their lowest low since the correction which began in 2011 trading to roughly $1040 per ounce. The rally that took place during the beginning of 2016 moved gold prices almost $300 higher. That rally would occur over the first six months of that calendar year; it would take the remainder of 2016 for prices to drop dramatically.

The lowest price gold traded to in 2017 also occurred right at the beginning of the year with prices at $1120 per ounce. This multi-month rally concluded in August of this year when gold prices reached their yearly high at $1363.

Although it is much too early to tell we certainly have the ingredients necessary for the seasonal tendency of low prices year-end and a major rally to start occurring at the beginning of a calendar year.

Wishing you as always, good trading,