Gold Price Forecast: Tops, Reversals And Timing

In a prevailing bullish sentiment, it’s hard to raise a word of caution – no matter how well justified. Yet, that’s what we aim to do today regarding gold. While it’s holding up quite well, there’s something going on beneath the surface that we’d like to share with you.

We’ll start by bringing your attention to the key technical development of this year – the record-breaking volume in gold. In particular, we’ll tell you what gold did after it topped on extreme volume in the previous cases. The three very similar cases volume-wise and volatility-wise are the September 2008 top, the 2011 top, and the early 2018 top. How did gold perform immediately after the tops?

Those High-Volume Gold Tops

In all three cases, gold topped on huge volume, but the decline didn't proceed immediately. There was a delay in all cases and a re-test of the previous high. The delay took between several days and a few months.

Since a similar pattern followed the huge-volume tops, it seems that we might see a re-test of the recent high in the near future. Don’t get us wrong – the true rally has most likely ended, but we might see a move close to the January high, a move to it, or even a move that gets gold very insignificantly above it. That’s when people bought gold at the top in 2008, 2011, and 2018, and we don’t want you to fall for this market trick. Knowing what happened then – huge declines in the price of gold – should prevent you from buying on hope for a breakout to new highs. Oh, and by huge declines, we mean the ones where gold declined by hundreds of dollars.

Based on the triangle-vertex-based reversals, it seems that we won’t have to wait as long as a few months, but a rally until the end of the month is quite possible.

But when could such a major gold move come? Please note how perfectly the long-term triangle-vertex-based reversals in gold worked recently.

The Short-Term Triangle Reversal in Gold

Gold was very likely to reverse, and it did exactly that, just like we had written earlier.

Reversals should be confirmed by big volume and last week’s volume was truly epic, which is a perfect bearish confirmation. It was the biggest weekly gold volume EVER.

We wrote many thousands of words in our premium Gold Trading Alerts, discussing myriads of factors present on the precious metals market that support lower PM prices in the following months, and will write even more... But, the record-breaking-volume reversal is alone enough to make the outlook bearish. That’s how significant this reversal-volume combination is.

In addition to the above, the above chart shows the next medium-term target for gold – at about $1,400 level. This target is based on the mid-2013 high in weekly closing prices, the 38.2% Fibonacci Retracement ased on the 2015 – 2019 upswing, and the rising medium-term support line. Of course, that’s just the initial target, gold is likely to decline more after pausing close to $1,400.

Since the triangle-vertex-based reversal technique worked so well recently, let’s check what else it can tell us. The below charts feature the reversal points based on the very long-term triangles.

The Long-Term Triangle Reversals in Gold and Miners

Gold seems to have reversed (a short-term bottom) close to its reversal date and the next one is at the beginning of March.

In case of gold stocks, we also saw a short-term bottom at the reversal date and the next one is due early February.

Please note that the lack of the reversal points doesn’t mean that there will be no reversals – this technique is neutral in this case.

The implications are that the beginning of February and the beginning of March are likely to include some kind of reversal. If gold moves higher from here and the USD Index corrects lower, the PMs would be likely to top in the first days of February.

Summary

Examination of gold tops made on exceptional volume highlights the possibility of seeing a rally in gold in the next several days. However, the bullish implications don’t extent beyond that. In fact, the triangle-vertex-based reversals point to a relatively nearby time window in which gold could reverse its course and fall hard – just like it did in 2008, 2011, and 2018.

The following months are not likely to be pleasant times for anyone who refuses to jump on the bullish bandwagon just because prices moved higher in the previous months. But what’s profitable is rarely the thing that feels good initially. As silver often moves in close relation to the king of metals, forecasting gold’s rally without a bigger decline first is thus likely to be misleading. The times when gold is trading well above the 2011 highs will come, but they are unlikely to be seen without being preceded by a sharp drop first.

Naturally, the above is up-to-date at the moment of publishing and the situation may – and is likely to – change in the future. If you’d like to receive follow-ups to the above analysis, we invite you to sign up to our gold newsletter. You’ll receive our articles for free and if you don’t like them, you can unsubscribe in just a few seconds. Sign up today.

Przemyslaw Radomski, CFA

Editor-in-chief, Gold & Silver Fund Manager

Sunshine Profits - Effective Investments through Diligence and Care

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All essays, research and information found above represent analyses and opinions of Przemyslaw Radomski, CFA and Sunshine Profits' associates only. As such, it may prove wrong and be subject to change without notice. Opinions and analyses are based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are deemed to be accurate, Przemyslaw Radomski, CFA and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Radomski is not a Registered Securities Advisor. By reading Przemyslaw Radomski's, CFA reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Przemyslaw Radomski, CFA, Sunshine Profits' employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.