With a hawkish Fed and dollar strength, gold has dropped below $1,950 an ounce, but the technicals appear to indicate that we are at or near the end of a correction.
The technical analysis last month was published when gold was around $1975 and concluded:
The indicators are now mostly neutral with a bearish lean. There are some slightly bullish indicators, but nothing strong enough to give a clear signal. This suggests the price could drift lower until it finds the right catalyst to reverse. There should be plenty of catalysts on the horizon, but the biggest one will be how the Fed responds to the next crisis. Until then, pressure is pointing downward.
That conclusion has been accurate over the last month as the price has drifted lower with any rallies being sold.
The technical analysis last month highlighted the mixed environment at the time:
The indicators are once again giving some mixed signals. The price action is definitely needing further consolidation. However, other indicators suggest a market that is just getting started. … Either way, downside does seem limited at this point, especially considering all the bad news has been priced in.
The pullback from recent highs is still a healthy correction after the price action got a bit ahead of itself. So, how much more downside can we expect? Let’s look at some of the data.
Gold had a big rally last week. But is it sustainable? What are the technicals saying?
The data over the last several months continues to give insight into the market. November showed the market was in neutral, but then the December analysis correctly identified an impending move upwards, the January review called for a correction and then February concluded:
The data over the last several months has been spot on in predicting the moves in gold and silver. November showed the market was in neutral, but then the December analysis correctly identified an impending move upward, and the January review concluded that gold may need a breather before moving higher.
So, what about this month?
Over the last several months, you may have noticed a new series of articles with a data-driven focus here at SchiffGold. In this Metal Exchange interview, host Mike Maharrey talks to the man behind those posts.
Mike and Tony dig into the ins and outs of technical, data-driven analysis and how it can expand our understanding of the gold and silver markets.
The price analysis two months ago concluded that a neutral market had been found between $1800 and $1850 and was waiting to see a break of resistance or support. It leaned bullish with indicators showing the down move had run its course but it also highlighted the risk that a drop below $1800 and $1750 brings $1680 into play. Last month concluded that even though gold was still trapped between $1800 and $1850 it had built up solid support. Unfortunately, gold fell through the trap door at $1800 and tested $1680 last week. Has a bottom been found? Too soon to tell, but a look at the indicators could give some clues.
After a big miss on the Powell/Brainard nominations in November, the price analysis has been fairly accurate. Identifying the initial breakout above $1800, mentioning that $1900 was fragile support, and last month concluding that gold had found a bottom around $1800.
For the past month, gold has been consolidating within a tight range around $1850. The data suggests the next move is most likely up. Lots of indicators have bottomed, which leaves little downside remaining. The market has also priced in an extremely aggressive Fed and held up very well over that time.
The price analysis last month identified the near-term risk that gold could fall below $1880 and even $1850 despite a medium-term bullish outlook. The $1800 level was identified as a key marker for keeping the bull move intact. So far, that has held and produced a solid bounce back towards $1850 which becomes the next hurdle.
Gold is currently tucked between fragile support and weak resistance.
Both gold and silver have been on a wild ride for the past several weeks. The last technical analysis showed how gold had broken through the lengthy consolidation pattern between $1750-$1800, with the Ukraine crisis pushing the metal through $1900.