Muted Action as Gold Finds its Footing

Consider this: Since July 10th of this year, gold prices have moved from $1200 per ounce to last week’s high of $1363, a new record for the year. In other words, in roughly ten weeks, gold prices have seen an increase of value of $160, which translates to an 8 ½% gain. Given that kind of steep price ascent, one would expect a cycle of peaks and troughs, stair steps to higher pricing.

On a technical basis, this rally can be divided into two primary upside moves. The first upside swing began after gold prices fell to a low of $1200 during the second week of July. During the remainder of July up until the first day of August, gold prices rallied to reach a high of $1280.

During the first week of August, gold prices retraced roughly 23% before bullish sentiment reversed the shallow correction and gold prices once again began to gain value. What would follow was the most significant rally exhibited in gold prices during this calendar year. Gold prices would advance by $100 in value throughout August, reaching a new record high of the calendar year on September 8 at $1363.

Which brings us to our current pricing in gold, and as of 4 o’clock EDT, gold futures are trading at $1335.80, up $0.10 on the day. As such, when you look at gold’s current pricing in conjunction with its recent past price moves, this recent price decline is to be expected.

What is important to focus upon is not the fact that gold prices have recently declined from its recent highs, but rather what is a logical price point for gold to find support on a technical basis.

By creating a Fibonacci retracement from $1256 (the low achieved during the last corrective wave) to last week’s record high of $1363, we can plot logical technical price points where gold prices could, in fact, find support.

The first Fibonacci retracement level of 23% falls at $1338, which is above current pricing. The next level of interest would be a 0.382% retracement which is 1322.30. Below that is a 50% retracement at 1309 and the 0.618% retracement level which falls to $1297.20.

Therefore, if gold continues to lose value, look for potential support at one of these critical Fibonacci retracement levels. The 38% retracement at $1322 is our current forecasted target. Since gold prices could decline further, the maximum downside price movement based on Fibonacci retracement theory would be around $1300 per ounce, the .618% retracement.

Wishing you as always, good trading,