On September 4TH, 2019 gold hit its highest value for the calendar year. From the beginning of May up until the beginning of September gold gained approximately $295 as it moved from $1270 per ounce to $1565 per ounce. It took only four months for gold to gain 5.3% in value. Following this dynamic price advance market forces resulted in a key reversal, a pivot from bullish market sentiment to bearish market sentiment. What would follow would be a multi-month correction moving the price of gold lower. On Monday, November 11th we wrote the first of a series of articles in which we first identified a strong possibility that the correction in gold was about to conclude. Deeply under the influence of bearish market sentiment, gold pricing had been in a defined correction, with current pricing at $1456.80.
In fact, the chart below labeled chart one was the actual chart that we presented on that day. Chart 1, November 11,2019 We used Fibonacci retracement theory As our primary technical study to indicate various levels that had a high probability of identifying price support. We also used a very long data set beginning in December 2015, when gold prices dropped from $1900 to $1040, and ending in August 2019, when gold reached its highest value this year at $1565 per ounce. Of particular interest on chart 1 is the Fibonacci retracement levels that occur at the 23.6 %, and 38.2% retracement levels.
Chart 1, November 11, 2019
We noted that current pricing was $11 above our first level of interest, the 23.6% retracement level at $1466.10. Chart 2, November 12, 2019.
Chart 2, November 12, 2019
On Tuesday, November 12th, gold had traded to a low of $1446.20, and recovered to higher pricing after. This was the first strong indication that this retracement level accurately forecasted support.
Then on Wednesday, November 13th, gold prices spiked sharply higher trading to $1464.30, almost $20 above the low predicted using Fibonacci retracement theory. The price level gave technical evidence underscoring the strong potential for this tecnique to indicate support and resistance levels accurately.
Chart 3, November 13, 2019
On Thursday, November 14th we released part four of our study on Fibonacci retracement theory. The fact that gold had traded to a low predicted by Fibonacci retracement theory, and more importantly recovered off of that low as it traded significantly higher for the next two trading days underscored the potential market insight this study can provide when used properly. Gold traded to a high above $1473, and settled at $1471.60 on that day.
Chart 4, November 14, 2019
Even though prices have softened a little since last week’s high was achieved, the undeniable fact is that this technical study, which uses information derived from a mathematical formula (Fibonacci number sequence *) so simple, and yet so powerful that it mathematically defines one of the most important laws of nature. While it is an accepted fact that fundamental events are at the core essence of price changes in all the financial markets, the use of Fibonacci retracement theory can have a profound impact on how a market technician gains insight. In some cases, such as this example can forecast a support level within $0.10 of the actual number.
There is a major caveat to using this technique is a standalone study. While it has an uncanny ability to define future support and resistance levels, it does not account for the strength of the upcoming rally or correction. Given that fact although retracement theory precisely predicted a level of support we could still be looking at a major rally or a false breakout. As of this point the jury is still in deliberation .
Wishing you as always, good trading,