Wednesday, 22 November 2017

Gold Lining Up behind the Gate for a Breakout

Firstly, this is only a short term look, and not dealing with longer term outlook.

Gold price chart from 2016 to 2017
Gold price chart from 2016 to 2017
(Click image to enlarge)

When gold reaches an important resistance, it tends to retreat strongly and decisively as seen by the many black arrows in the chart. There're little dillydallying. It provides easy signals for gold bears to short it.

On the other hand, when gold reaches a resistance, and instead of charging into the resistance, it lingers or lines up just below the resistance for a while, this consolidation behavior would more likely to eventually break above the resistance. This is shown by the rectangular boxes.

Right now, the prices are forming another box just as it did in August before the breakout.

Battling ram
File of soldiers ramming the gate.
Source: Pearson Scott Foresman [Public domain], via Wikimedia Commons

I'm visualizing this price action as soldiers trying to break through the gate of their enemy. When price only hits the resistance once, i imagine this price action as a solitary soldier tries to break through the gate.

On the other hand, when prices moving along just below the resistance as in the 2 boxes above, i'm visualizing this as a building up of a file of soldiers ready to break through the city gate. Logically, a file of soldiers would have a greater chance of breaking through the enemy's gate than a solitary soldier. Strength in unity.

It's true that the gold price had made a hit of the resistance (shown by green horizontal line) on last Fri 17 Nov, but the price didn't simply start to retreat decisively as it did in many occasions that are marked by black arrows in the chart.

This suggests a high probability of price breaking above the green resistance line of $1295.

Nothing is certain. Market does what market does. This is just a high probability price development.

Also, late December and 1st half of the year tends to be a more bullish period for gold price. Just look at the gold prices in the last few years.

Just breaking above $1300 is nice, but we need to see price to rise above the previous high of $1360 to make gold looking more bullish. This is something we can look forward in the 1st half of 2018.

Fundamentally, this price development has something to do with the 2nd largest Aussie gold miner announcement of its lower future output or USD. But i don't need to know that. In fact, i don't care. It's all shown in the price action.

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