Hello traders ! Gold is on the way to 1600 as we analyzed last week. In last analysis, we expected gold to reach short term target and resistance at 1485 and it did so in a day’s move. After resistance at 1485 was broken, now it becomes our short term support for gold. Yesterday gold spot reached as high as 1435 but reversed from 6 year high after the U.S announced to delay the 10% tariffs on some of the products from China. As a result, gold fell hard to 1480 but recovered to 1500 level as U.S market closed. In this analysis, we will take a look at some supports that gold needs to hold as well as some resistances that gold has to take out in order for gold to achieve our target at 1600.
n the weekly chart above, we have drawn a channel which identifies the uptrend of gold since the bottom of gold in December 2015 at 1045. You can see clearly that gold is struggling to move above the upper channel line. If gold manages has its weekly close above this upper channel line, gold will have a big chance to accelerate very fast to the upside at 1600 or even at 1700 or more.
Furthermore, we have drawn a Fibonacci Retracement from 1920 in September 2011 to 1160 in August 2018. And we have drawn a Fibonacci Extension from 1045 in December 2015 to 1375 in July 2016. So by combining the levels of both Fibonacci Retracement and Fibonacci Extension, we can identify two key price levels which are confluence levels of both. These level are 1450 and 1540. So in short term, 1540 will likely act as a major resistance for gold and 1450 will act as major support for gold. That would mean if gold is able to take out 1540, it will go much higher to 1600 or more. But in order for this scenario to validate in short term, gold will need to hold major support at 1450.
Now please take look at the second weekly chart from above. As we mentioned in our last analysis, the short term target for last week at 1485 which is the 50% Fibonacci Retracement from 1920 down to 1045. Now this 1485 will become our short term minor support. As you can see in gold’s action for the last couple of days, 1485 has became daily support for gold. As long as gold maintains above 1485, gold has a chance to test our major resistance at 1540.
Meanwhile, an important resistance level in short term for gold is at 1522-1525 which is the yellow area on the chart. This 1522-1525 level was the support for gold during its consolidation phase between October 2011 and March 2013 until it broke down in April 2013. After gold broke down under 1522 in April 2013, it dropped to 1200 just in two months. Therefore, this 1522-1525 now will become important resistance level for gold in short term.
In conclusion for this analysis, we think there will be plenty of supply for gold between 1522 and 1540. And there will be plenty of demand for gold between 1450 and 1485. So the levels we need to watch for gold are 1522 and 1540 on the upside, and 1485 and 1450 on the downside. As long as gold maintains above 1450, the opportunity for gold to get to 1600 stays positive. Yet, gold will need to clear the hurdles at 1522 and 1540 before getting to 1600.
However, we can see that our RSI indicator on the weekly chart is at the extremely overbought level. That could raise some concern about the potential correction to the downside. If there is some correction ahead, it will be a healthy one for gold market as long as 1450 holds well. And it will also be a great opportunity for us to get long again at a bargain price.