I’ve you’ve been following gold prices lately, you’ve noticed the precipitous plunge from the 1,025 per ounce high made just earlier this year. Rather than getting ultra bearish at these levels, let’s consider the possibility that a bounce may occur, or at least that gold prices are at critical ‘make or break’ short term price levels. Let’s use a few new tools to see what could be in store.
Gold Prices Weekly, using two Fibonacci Retracements:
While one could get better results focusing on longer term Fibonacci retracements, let’s look at two possible levels on the weekly chart.
First, if we take the 2006 breakout low (around $560) and then trace that to the $1,025 high (this is the RED grid on the left side of the chart), we note that gold paused first at the 38.2% retracement at $852, before heading higher. Gold is now testing the 50% Fibonacci retracement from this move, at $797, and actually has broken slightly beneath this level.
If we take the 2007 price breakout low (blue grid on right side of chart), then we see that gold has already failed the 50% retracement and is now testing the 61.8% retracement at $791 per ounce, which is just below where price closed ($792) on the week.
The quick thought is that these levels could hold to give at least a minor (or perhaps major) support level for price – thus a long entry with a close stop might not be a bad idea IF you believe in Fibonacci relationships and the interpretation I have here (I strongly encourage you to do your own analysis for deeper insight).
If anything, it might give you pause to take an aggressive short right here, at least until prices firmly break these potential support levels.
Let’s take a quick look at the Gann Fan analysis chart (TradeStation):
I’m not a Gann expert, so I encourage others to submit comments on of this is correct, but using the $1 as an input on the default TradeStation Gann Fan indicator (taken from the price high), these mathematical lines appear. Notice how the price has roughly held the relationship temporarily at a test, and appears to be an interesting tool for application.
At current, price is just beneath the 1×2 fan line, which could hold as support (though note that price has just breached beneath this level). I won’t go too deeply into Gann analysis, only to note the possibility of price confluence with Fibonacci.
Back to Fibonacci, let’s look at the Fibonacci Extension/Projection tool, along with a “Measured Move” that has completed:
First, the Green line represents where I drew the three points necessary to create the Fibonacci extension grid (which resulted in the blue data to the right), which also happened to be a measured move.
Price fell $193 from the high to the May lows before rising $138 to form the July high. The “measured move” would expect price to again fall $193, which occurred and was slightly exceeded on Friday’s close for a price decline of $207 per ounce (from the July high). Often, price reverses once a measured move is complete.
Also, price has exceeded the 100% Fibonacci price extension line drawn from these swing high levels. The 100% projection is at $804, and price is currently trading at $791 per ounce.
Price is just beneath key potential support levels provided by Fibonacci retracements, Fibonacci extensions, and Gann Fan lines. Whether price holds here is yet to be seen, but with such potential confluence of price levels about the $800 per ounce level, a bounce (or support) for price is not out of the question. However, if gold prices trade beneath $790 or $780 convincingly, gold would have failed to support at these levels, and true support levels may be further away, and could come in as low as the $650 to $700 range.
Continue to watch this level very closely in the upcoming week.