Gold Analysis August 2016 (D,W)
Created on Monday, 01 August 2016 01:33
Written by Austin Galt
Previous analysis outlined my expectation that a point 5 high was in place. After some contemplation, I am sticking solid.
After a brief scan of some analysis and commentary out there, the consensus opinion seems to be the next higher low is in place and a move to new rally highs us underway. Bing, bing, bing! That is my contrarian alarm going off.
Admittedly, my first reaction to the move higher this past week was to think the same. This is just normal human behaviour kicking in and beating the market is often about fighting that natural instinct and doing just the opposite.
Also, it is my expectation that the US dollar is now headed down and applying normal market rules would mean that gold must go up. Once again the contrarian play is to go against this ingrained thinking...for the short term anyway.
I believe gold will shortly head back down along with the US dollar. Then gold will make a low and then rocket back up as it plays catch up with the US dollar which continues to decline.
So, with that said, let’s take a look at my thinking using the daily and weekly charts.
GOLD DAILY CHART
Ok, now clearly we must keep in mind the possibility that the uptrend is back on. A break to new highs above $1377.50 will likely confirm that.
My favoured scenario, however, is to look for a lower high around the 76.4% Fibonacci retracement level at $1361.74 and the 88.6% Fibonacci Fan angle.
Price is back at the upper Bollinger Band and I expect price to push a bit higher into this band before turning back down.
The RSI is back in overbought territory while the MACD indicator has just made a bullish crossover although it doesn’t look that strong after it is below the previous low.
GOLD WEEKLY CHART
We can see the 5 point broadening top in play which I favour to turn into a 7 point broadening top.
The Bollinger bands show price has left the upper band and I expect price to turn back down without getting back to the upper band.
I have added Fibonacci retracement levels of the whole move up thus far. I am targeting the point 6 low to be around the 61.8% level at $1172.26. A higher low is also a possibility and I will be watching closely how price behaves around the 50% level which stands at $1211.45. This obviously assumes I am right about price not exploding even higher from here.
The RSI is just under overbought territory and I doubt it will get there which implies next week should see a reversal back down.
The MACD indicator is bullish although it would not take much to get a bearish crossover.
Summing up, the contrarian play over the short term is clearly to the downside in my opinion. That is what I am sticking with. A break to new highs now just means my short term view is wrong. We will know either way shortly.