Gold setting up for a recovery in 2015
Gold peaked in the late summer of 2011. The price only really started to collapse in October 2012 and fell almost every month for nine months up until June 2013 when it bottomed at around the $1180 area. Since then the price actually trended mostly sideways when you look at the monthly chart, bouncing to the low $1400 area and then drifting back down to 2013 year lows. At the end of last year, however, the price began to break lower and hit the $1140/1130 area.
What you can see from the monthly chart above, however, is how longer-term Fibonacci support at 1155 in the gold futures contract worked perfectly as support. Although this level was breached in November 2014, we closed above it on both a monthly and a weekly basis. It is also worth noting that the 100-month moving average at 1190 did not hold the price down for long.
If we now take a look at the weekly chart you can see that the 2013 lows around $1180 continued to have an impact on trading throughout 2014 and even into the start of 2015. The big red line clearly shows how this level has worked as support and resistance at the end of 2014 and the beginning of 2015. We appear to have been able to stabilise above this level recently and this has given traders and investors a platform to push prices higher at the start of this year.
Note how the slow stochastic oscillator at the bottom of the chart has turned positive to help confirm a more bullish outlook on the monthly chart.
As I write today on 13 January, it’s early in the morning, but we’ve already tested the December 2014 high in the gold futures contract at 1239. In the very short term we have become very overbought now and there is a lot more resistance here from other sources, so I think we’re due a short-term pullback just over the next few days. I think however that this might be the last chance to buy gold in the low $1200 area. As I write we are trading at $1236 and I think we should get a drift lower to $1228/1224, perhaps as far as $1218/1215. If we do fall this far, I think we could see very strong buying, which could push gold significantly higher into the end of January and the months ahead.
The daily chart above shows what I believe to be an inverse head and shoulders bottoming pattern, forming over the last three to four months. I have marked the key areas of this important pattern with green triangles. I have also identified the neck line of this head and shoulders pattern with the green trendline. Although we have broken above this neck line, I do not think the price will accelerate higher just yet. First I think we need a pullback to shake out the week-long positions. Only then can the recent rally gain momentum and moves to the upside could accelerate quite quickly into the end of the month.
Our first main target on a break above the December high of $1240 is the October high and 200-day moving average, around 1255. Above here we meet quite strong resistance at $1265/1270, which should prove to be quite a challenge. I would not be surprised to see the market pause here. Eventually we should break higher to target further strong resistance at 1288/1292, but I would not be surprised to see the price of gold head for the July high of 1345 at some stage this year.