Gold Update: Is A Bear Face Showing Up?

Gold has missed our main target by $20 as it topped at the $1557 on the 4th of September. The gold optimists still benefited nicely as this peak was $67 above the first target of $1490, that we hit more than one month ago. So, it was definitely worth it to keep bullish for one more month.

Let’s see below if there were a lot of gold optimists a month ago.

Indeed, the majority with a large margin preferred the continuation of the gold’s rally. It means you could book more than $60 for every ounce staying bullish. Thank you for support as I also believed in that outcome.

In the meantime, we should bear in mind that this was just a considerable correction, which had started in December of 2015. It has been retracing the other drop between 2011 and 2015. So, it is evident that the considerable drop and the correction are almost equal in time it took to emerge – 4 years both. Shall we book the recent rally as “done”?

After many years on the market, I stopped worrying about guessing the top or bottom of the price. Yes, we could miss it as the price extremes are the emotional spikes, and it is hard to guess when it stops. But we could detect the reversal as we have a particular approach for that.

Let’s look at the daily chart below to see if there are any signs of reversal as price is below the multi-year top.

Gold has dropped right after it hit the multi-year top and the move was quite strong and worrisome for bulls as day after day it was falling lower and lower until it reached the area of orange trendline support, which been built through the valleys established in May and August would be the first bearish trigger for the gold once the trendline gets broken. On the other hand, if the price will reverse here and move up beyond the former top, then this low at the $1485 level could become another growth point as it was in August when the price started to elevate from the $1400.

From the structural point of view, there are two distinct moves have appeared – the first one is the drop, which potentially could become an initial move down within the upcoming huge collapse. The second move is the pullback, which has retraced the first move for more than a half, and that is enough to continue further down.

The RSI showed its Bear Face earlier last Monday as it had sunk below crucial 50 level for the first time since May when this whole second leg up had started. This adds to the Bearish Karma for the gold.

One could have spotted the bearish pattern on the lower time frame as I did for you below in the 4-hour chart.

Chart courtesy of tradingview.com

Most of you know this pattern very well. The combination of the higher top between lower highs shapes the reversal Head & Shoulders pattern (blue). The right shoulder could still be in progress as it is relatively smaller than the left shoulder. The latter took 15 days to unfold and the right shoulder just a newborn as it has been emerging for only 3 days. Therefore, we could see another spike higher as the second leg of a pullback in the area of the left shoulder’s top ($1535) before further drop appears (red zigzag).

The pattern is declining as the left Neckline point is higher than that one on the right. It amplifies the bearish outlook. The breakdown of the Neckline below $1478 will validate the pattern.

The target is located at the distance of the Head’s height ($69) subtracted from the breakdown point ($1478) at the $1409. This target is very close to the invalidation point, and this drop could trigger it.

So, the bulls could capitulate if the price will not recover above $1557 again.

Intelligent trades!

Aibek Burabayev
INO.com Contributor, Metals

Disclosure: This contributor has no positions in any stocks mentioned in this article. This article is the opinion of the contributor themselves. The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. This contributor is not receiving compensation (other than from INO.com) for their opinion.