COMMODITIES FX
valid for many commodities) usually last longer than the bull market. That’s why I think we have entered a very volatile period of huge gyrations but eventually gold will head lower.
Now, let’s see the Medium-Term picture by focusing on the weekly chart of gold:
CHART 1: Monthly chart of XAU/USD (gold)
Now, as you can see from the chart, this initial leg down was followed by a period of broad consolidation between 1522 and 1800 that lasted more than a year until gold broke down below the 1522 support in early 2013. Now, the conclusion from the monthly chart is that the major trend is currently down. The key level of resistance is the 1522 level (former level of support). The medium-term downside target is seen at levels near the psychological $1000 level. Eventually though I expect to see gold even lower than that, most likely at $700 in the next few years.
Of course one can argue that gold has seen enough correction of its bull market, and it is time for the bull market to resume. I personally do not buy that idea because I have observed
Source: MetaTrader
that corrections and consolidations in gold (and not only gold, that’s
As I noted earlier in the article, gold reached a peak in September 2011 but then it spent several months trading sideways. This sideways trading of almost 18 months is considered a Phase III Topping Formation if you are familiar with the market phases approach of technical analysis. Terefore the real bear market began in February 2013. Then in March gold broke down below the key 1522 support level and confirmed the new market trend.
CHART 2: Weekly chart of XAU/USD (gold)
Source: MetaTrader
FX TRADER MAGAZINE January - March 2014 55
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