TECHNICAL ANALYSIS
The focus of these articles is to bring you the most relevant technical analysis which impacts the precious metals markets each week.
The reality is that each week, there is an infinite number of data points which could be analyzed. This is because the markets are the sum of billions of participants and non-participants, each one believing, thinking, erring on the side of caution, and ultimately behaving in a unique manner.
Yet to try to capture and comprehend all of the reasoning from billions of people around the world who may, in a given week, buy or sell gold, silver, U.S. dollars, commodities, stocks, or bonds would be an exercise in futility. Data overload is just as bad, perhaps worse, than data under-load. There is a better way.
The beauty of charts we use is that they encompass the single data point that ultimately matters most and where all participants come together: Price. Every single stacker, investor, trader, accumulator, manipulator, speculator, and regulator come together at that same single point. Price shows us the sum of all participants' decisions at a given time. We may not agree with the sum - and indeed we should hope to disagree if we are to make a profit - but still, there is no more powerful data point than what the price of an asset is right now.
The study of technical analysis is thus, the thing that matters most to us: price. There's simplicity and power in focusing in this way while tuning out all the noise that appears throughout the rest of the mainstream press.
While certain articles of ours may focus more on fundamental analysis, always know that the fundamental analysis is published to help explain what we are observing on the charts - not the other way around.
GOLD UPDATE
For the week in sum, gold finished lower by $2 or 0.1% to close at $1,333 as of the final trade on the New York COMEX as of Friday afternoon. As always, the COMEX is a futures market. Spot prices will typically be a few dollars less than the futures prices, and physical prices will always be 3%+ more depending on the product.
We expect with the highest probability that an interim peak is now forming, from which a decline should bring gold back to within the green shaded zone under $1,300 by late Q1 - Q2.
Over the very short-term, we see hints of the top now coming into place via a break below the rising trendline which defined the advance out of the December bottom. Note how gold broke the trend on January 17 (red callout), to retest it from the lower side on January 19 without success. While gold could continue to hug the broken trend and grind marginally upward, this signature tends to mark the transition to interim peaks:
With all this in mind, we can calculate the Fibonacci retracement levels inclusive of the entire December - January advance, to identify likely targets for the coming retracement. The levels to watch for are identified below in the silver color:
38.2% retracement - $1,304
50% retracement - $1,291
61.8% retracement - $1,279
ON A CHANGE IN GOLD'S DISPOSITION
A final technical observation for this week: since the 2015 bottom, gold has seen a series of major advances and sharp corrections every 1-3 months on average. This type of price pattern has caused whiplash amongst many investors, a term we use to describe the inability for individuals to continue to participate in a market due to volatile price swings.
As a trader, I have come to expect these sharp swings in gold every few months.
Yet as a student of market history, I know that when I generally expect certain behavior, markets are typically ready to surprise me by behaving differently. Could the coming surprise, in fact, be one of lower volatility than we are accustomed to?
For example, can we fathom that in a correction, gold may fall back to the 50% Fibonacci retracement at $1,291 not with a quick drop followed by a rapid rebound, but instead in a slow grinding manner lasting several months? Equally likely, the rise out of the pending low may feature a low-volatility advance.
Short-term traders, especially, should consider this proposition. Tradeable swings may not be as common over the next few quarters as they have been over the past two years.
TAKEAWAY ON GOLD
This market has seen major surges and retracements since 2015. Market behavior does not stay the same forever. Just when most are expecting dramatic moves in either direction - this may be the time when gold fools the majority by changing its disposition for some months, just prior to the important break of 2016 highs that we are expecting later this year.
Posted 01/23/2018 11:34 am
