Gold prices have been featured prominently in the news lately, with the strong run-up into the $1,225 level and then the quick decline back to $1,100.  Let’s pull the perspective back and look at monthly gold prices to see a possible replay of a pattern that has formed twice in the past… each time forming just before a pullback in price.

I’m highlighting two prior periods in monthly gold prices, starting with the early 2006 spike high just shy of $750 per ounce.

The second highlight is early 2008 with the spike high just shy of $1,050 per ounce.

What do these two periods have in common?

Price rallied at least $300 over both periods and then formed a sharp spike up in price above the upper Bollinger Band… just before a retracement down in price occurred.

Neither of these pullbacks broke the uptrend in monthly prices, but both occurred just prior to a steep pullback.

In mid-2006, price fell from $750 back to $550 before forming a consolidation pattern and bouncing back off the rising 20 period EMA.

In mid to late 2008, price feel from $1,050 to $700, falling roughly $300 over the course of the next few months.  Price this time broke the rising 20 month EMA but supported solidly on the rising 50 month EMA.

IF history repeats and the cycle repeats a third time into early 2010, then the next likely support target for gold would be back to the $950 to $1,000 level of the 20 month EMA, or the key breakout zone of $1,000.

That’s not too far away now, and it would seem logical to expect a correction or pullback in prices after such a steep rise we’ve seen over the last few months.

This cycle does not argue for an end to the uptrend, but a steady pullback that could last the next few months.

Keep this structure and prior pattern in mind as we turn the corner into 2010.

Corey Rosenbloom, CMT
Afraid to Trade.com

Follow Corey on Twitter:  http://twitter.com/afraidtotrade