Gold bugs have been disappointed – once again.
Gold reached the giddy heights of $1,300 on January 22 (up from the $1,130 low last November) before crumbling, along with many related stocks.
You could see it coming when articles popped up proclaiming gold was back on track to make it to $3,000. The tone was certainly more bullish – until recently.
What’s coming next? Let’s look at the wave on the daily chart.
This is always a corrective pattern, and indicates that the next move will be down.
The rally to $1,300 also hit the Fibonacci 78% level of wave 5 – and was one of the factors that made me quit and take my profits.
Does all this mean new lows are now certain? After all, the A-B-C is a clear signal, is it not, that the downtrend has resumed?
Normally, that would be a correct conclusion, but the A-B-C rally to date appears too small compared to the record bearishness at the November low. Also, the A-B-C rally has only lasted three months, which is much shorter than the other major waves.
I think the odds are good that we could see a resumption of the rally above $1,300.
How will that work out? Here is a possible outcome:
Either scenario implies the market could find a bottom and then rally above $1,300 in either a large wave 3 or large C wave.
That’s one possibility. Let’s zoom in on the smaller scale one-hour chart:
The market is currently testing chart support from the December high and the congestion zone in January (support is the price level at which demand is thought to be strong enough to prevent price declining further).
The market hasn’t broken my lower tramline so far.
In addition, the market is at the important Fibonacci 50% level.
That level’s important because there are accurate bounces off the 23% and 38% levels on the way down. When you see that, you can rely on the lower 50% and 62% levels as providing support.
It’s looking more and more likely that the market is about to stage a bounce If that happens, the upper tramline comes into play as the next line of resistance.
Of course, breaking up through it would indicate the rally was back on – and a rise towards the $1300 level would then become much more probable.
Will gold bugs be smiling again soon? We’ll see.