Hello traders. What a week that we have gone through. After FOMC, gold broke multi-year resistance at 1360-1370 and went up madly till it reached approximately 1440. The dovish FED announcement plus the tension between U.S and Iran helped lift gold to 6-year high. Even though we are bullish and expect out medium term target at 1450 but to be honest, we did not expect that kind of a move from gold. In just less than one week, gold went up about $100 and almost reached our medium term target at 1450. It was just only $10 short. The latter of this week saw gold consolidates between 1400 and 1425. Now the focus is on the G20 meeting this weekend where U.S and China will meet for negotiation of trade deals between two countries. Whatever the outcome will likely have a big impact on the gold price.
Apparently gold is very overbought on daily and weekly chart and is due to a good correction until it can climb further. However due to the results of the G20 meeting this weekend, anything can happen. If U.S and China comes out with some kind of a deal, gold might collapse. If they do not get a deal, gold will go higher and target 1450 or even 1480. So it all depends on the negotiations tomorrow. Even though we are very bullish on gold, we think technically it needs a correction first. And we think it is likely that U.S and China will reach at least an agreement to postpone the additional tariffs and agree to have further negotiations to resolve the trade wars that already affect both countries quite badly. If so, gold will correct to the level of which it broke out. That is the 1360-1370 level, which was the multi-year resistance, now becomes a very good support.
Please take a look at the 1-hour chart. Gold might form a potential head & shoulders pattern. If gold breaks down under the neckline of the pattern, it can go down to test that 1360-1370 level support. However the trigger action will likely be dependent on the results of the meeting between U.S and China. Again if they get a deal, gold will likely fall down to test neckline. And if they do not get a deal, gold will probably go up to clear the recent top at 1439 and thus the pattern will be invalid. Therefore, our recommendation is that you should wait for a clear break down under neckline. Next week, we should be able to see whether or not this pattern is valid.
Even though in short term we think gold is due to a correction, we are bullish for the longer term and we believe gold can go much higher to 1600 or more. Please take a look at the monthly chart above. There is an inverse head & shoulders pattern on the monthly chart. Gold broke out of the neckline in 2017 before retesting the neckline in 2018 at 1160. That retest at 1160 is also a retest of the 12-year uptrend line since 2007. This is clearly a long term bullish sign. And since 2015 gold has made a series of yearly higher lows in 2015, 2016, 2017 and 2018. And the breakout of multi-year resistance in 2019 confirms a yearly higher high. Therefore gold is back to long term bullish. If we calculate the target of the inverse head & shoulders pattern on the monthly chart, it gives us 1650. So our medium term target for gold has been adjusted to 1650. Please note that this target can be achieved within this year or next couple of years. Even if gold drops under 1300, it will not change the long term bullish sentiment in gold. Only if gold drops under 2015’s low at 1046 then we will have to change our long term bias to bearish.
In conclusion, we will wait for the results of G20 meeting tomorrow to decide what gold’s next move is. If the result is positive, gold will have a correction to the downside. If the result is negative, gold can go up higher. In short-term we tend to think gold is due for a correction. However in medium and long term, we set a target at 1650. Have a nice weekend.