Ever since the precious metal topped extremely close to the 50% resistance around 1834, twice, we were expecting a drop below 1750. In addition to the accurate retracement level retest, it was possible to count 5 waves down & 3 up (1-2-3-4-5 down then A-B-C up), which in Elliott analysis, is the most perfect sign of a coming drop!
That happened in mid-July, and as expected, gold dropped below 1750, so what’s next?
Everybody knows that the negative correlation between the precious metal & the greenback is one of the strongest in all of the financial markets. Gold faced 3 selloffs recently, 2 of them were initiated based on dollar developments.
First, on Wednesday the 4th, Fed Vice Chair Richard Clarida said that he believes conditions for a rate hike will be present by the end of 2022, and that was probably the first time such a high-ranking Fed official mentions any other year than 2023, since the beginning of the pandemic. On that day, gold was flirting with a 3rd test of the Fibonacci 50% level at 1834, but it stopped a couple of dollars short, and dropped 1.4% in 2 hours!
Then again, on Friday, the “super-jobs-report” caused another hard drop of about 2.4% or 43 dollars, sending gold to a 5-week low! The jobs report was fantastic, 934k new jobs in July & an upward revision of 88k for the June number, while unemployment rate crashed by half a percentage point, and an average hourly earnings number that is better than expected? Is there anything that the dollar bulls & gold bears hoped for in that report, and did not get?
It was an amazing report, but it is not the jobs that really killed gold, it is the change that hit the Fed sentiment in the market. Now, with the job market creating a million jobs a month, and inflation above 5%, how long can the Fed wait before admitting they cannot hold until 2023 as they said many times? It is only a matter of time!
Between Mach 2020 & early January 2021, the dollar was under tremendous pressure, and it dropped crushing the greenback bulls with no mercy. We bottomed on January 6th (Georgia senate elections), but even after this bottom, the greenback spent months moving horizontally. The world reserve currency has been without a solid uptrend for 17 months, and it may be that this is enough!
During that time, the precious metal enjoyed amazing gains, but this may be coming to an end as a very serious warning sign appeared on the weekly chart: we broke below the main rising trendline! (red)
(Of course, we need a weekly close below this trendline to confirm this break, so let’s wait for the end of the week)
Gold has tested the 61.8% Fibonacci level for the rise from the COVID lo (1451.3 in March of 2020) to the historical hi (2075.1 in August of the same year). This level at 1689.6 was briefly penetrated during Sunday night crash, but we went back above it. The following recovery has left behind what I believe to be a key support at 1715.9, and this attempt to go higher again, has left us an important resistance at 1755.5. In my opinion, a penetration of either would be extremely helpful in favoring one side over the other for the short-term.
A break below 1715.9 would give the bears, who are already in control of this market, more power. Such a break should open the way for a test of the most important support for the short-term, the Marji 71.4% level very close to the $1,700 landmark. A break below this key level would confirm that gold pains are here to stay: another test of 1689.6 should follow soon, ahead of much lower targets like 1659.2 & the very important 1629.5.
If this last level fails to offer support to the precious metal, it will find itself on its way towards the 1500s. Targets below the 1,600-dollar landmark include 1584.8 & the important 1540.5, ahead of 1522.4, and finally the COVID lo 1451.3.
With the Fed under pressure & the dollar trying to establish its first significant uptrend move in a year & a half, it will be hard to imagine gold moving higher, but in the market, anything can happen.
However, any recovery attempts that fail to break above 1755.5 should be completely neglected. This is the initial resistance for now, and failure around this level would further confirm the weakness, but if this level is penetrated, a rising move towards what looks like the most important resistance area for the short-term should be expected.
This area is built between the short-term Fibonacci 61.8% at 1773.5 & the Marji 71.4% level at 1788.2. Again, failure around this area would further confirm the weakness, and indicate that lower levels would probably follow, but in case this area fails to stop the bulls, then things will get more complicated.
In case it happens, a break above the top of this area should be considered a bullish sign, and of course that would be a surprise. This bullish sign would be an indication that we are heading towards 1814.4 at the very least, and most probably 1830.4. This last level has a chance of capping gains, and giving back market reign to the bears, but in case the bulls can push past it, 1877.1 would be the next target, and above here we also have 1905.4 & 2 very important levels for the long-term outlook: 1923.8 & 1962. A top very close to either should be viewed as an opportunity to sell, for the medium or even the long-term. Breaking above 1962 is highly unlikely under the current technical outlook, but in case it happens, initial target would be 1990.4 ahead of higher, maybe much higher, levels!
Support:
- 1715.9: Fibonacci 50% for the recovery from Sunday night crash lo.
- 1700.1: Marji 71.4% for the recovery from Sunday night crash lo.
- 1689.6: Fibonacci 61.8% for the whole rising move from the COVID lo 1451.3 to the historical high 2075.1.
- 1659.2: Dow 2/3 for the whole rising move from the COVID lo 1451.3 to the historical high 2075.1.
- 1629.5: Marji 71.4% for the whole rising move from the COVID lo 1451.3 to the historical high 2075.1.
- 1584.8: Fibonacci 78.6% for the whole rising move from the COVID lo 1451.3 to the historical high 2075.1.
- 1540.5: Marji 85.7% for the whole rising move from the COVID lo 1451.3 to the historical high 2075.1.
- 1522.4: Fibonacci 88.6% for the whole rising move from the COVID lo 1451.3 to the historical high 2075.1.
- 1451.3: The COVID lo.
Resistance:
- 1755.5: Fibonacci 50% for the drop from Wednesday “Clarida-comments” hi.
- 1773.5/1788.2: Fibonacci 61.8%/Marji 71.4% for the drop from Wednesday “Clarida-comments” hi. This area is also important because it is just above the broken trendline on the daily & weekly charts.
- 1814.4: Fibonacci 88.6% for the drop from Wednesday “Clarida-comments” hi, which is also very important because in the coming few days it will be very close to the falling trendline from June hi.
- 1830.4: Fibonacci 38.2% retracement level for the whole drop from the historical hi.
- 1877.1: The 50% retracement level for the whole drop from the historical hi.
- 1905.4: Marji 57.1% retracement level for the whole drop from the historical hi.
- 1923.8: Fibonacci 61.8% retracement level for the whole drop from the historical hi.
- 1962: Marji 71.4% retracement level for the whole drop from the historical hi.
- 1990.4: Marji 85.7% retracement level for the whole drop from the historical hi.
Trend:
- Short-term: DOWN, as long as we are below 1773.5/1788.2.
- Medium-term: DOWN, as long as we are below 1830.4.
- Long-term: DOWN, as long as we are below 1962.
Good Trading & Good Luck!
Munther Marji CMT
That happened in mid-July, and as expected, gold dropped below 1750, so what’s next?
Everybody knows that the negative correlation between the precious metal & the greenback is one of the strongest in all of the financial markets. Gold faced 3 selloffs recently, 2 of them were initiated based on dollar developments.
First, on Wednesday the 4th, Fed Vice Chair Richard Clarida said that he believes conditions for a rate hike will be present by the end of 2022, and that was probably the first time such a high-ranking Fed official mentions any other year than 2023, since the beginning of the pandemic. On that day, gold was flirting with a 3rd test of the Fibonacci 50% level at 1834, but it stopped a couple of dollars short, and dropped 1.4% in 2 hours!
Then again, on Friday, the “super-jobs-report” caused another hard drop of about 2.4% or 43 dollars, sending gold to a 5-week low! The jobs report was fantastic, 934k new jobs in July & an upward revision of 88k for the June number, while unemployment rate crashed by half a percentage point, and an average hourly earnings number that is better than expected? Is there anything that the dollar bulls & gold bears hoped for in that report, and did not get?
It was an amazing report, but it is not the jobs that really killed gold, it is the change that hit the Fed sentiment in the market. Now, with the job market creating a million jobs a month, and inflation above 5%, how long can the Fed wait before admitting they cannot hold until 2023 as they said many times? It is only a matter of time!
Between Mach 2020 & early January 2021, the dollar was under tremendous pressure, and it dropped crushing the greenback bulls with no mercy. We bottomed on January 6th (Georgia senate elections), but even after this bottom, the greenback spent months moving horizontally. The world reserve currency has been without a solid uptrend for 17 months, and it may be that this is enough!
During that time, the precious metal enjoyed amazing gains, but this may be coming to an end as a very serious warning sign appeared on the weekly chart: we broke below the main rising trendline! (red)
(Of course, we need a weekly close below this trendline to confirm this break, so let’s wait for the end of the week)
Gold has tested the 61.8% Fibonacci level for the rise from the COVID lo (1451.3 in March of 2020) to the historical hi (2075.1 in August of the same year). This level at 1689.6 was briefly penetrated during Sunday night crash, but we went back above it. The following recovery has left behind what I believe to be a key support at 1715.9, and this attempt to go higher again, has left us an important resistance at 1755.5. In my opinion, a penetration of either would be extremely helpful in favoring one side over the other for the short-term.
A break below 1715.9 would give the bears, who are already in control of this market, more power. Such a break should open the way for a test of the most important support for the short-term, the Marji 71.4% level very close to the $1,700 landmark. A break below this key level would confirm that gold pains are here to stay: another test of 1689.6 should follow soon, ahead of much lower targets like 1659.2 & the very important 1629.5.
If this last level fails to offer support to the precious metal, it will find itself on its way towards the 1500s. Targets below the 1,600-dollar landmark include 1584.8 & the important 1540.5, ahead of 1522.4, and finally the COVID lo 1451.3.
With the Fed under pressure & the dollar trying to establish its first significant uptrend move in a year & a half, it will be hard to imagine gold moving higher, but in the market, anything can happen.
However, any recovery attempts that fail to break above 1755.5 should be completely neglected. This is the initial resistance for now, and failure around this level would further confirm the weakness, but if this level is penetrated, a rising move towards what looks like the most important resistance area for the short-term should be expected.
This area is built between the short-term Fibonacci 61.8% at 1773.5 & the Marji 71.4% level at 1788.2. Again, failure around this area would further confirm the weakness, and indicate that lower levels would probably follow, but in case this area fails to stop the bulls, then things will get more complicated.
In case it happens, a break above the top of this area should be considered a bullish sign, and of course that would be a surprise. This bullish sign would be an indication that we are heading towards 1814.4 at the very least, and most probably 1830.4. This last level has a chance of capping gains, and giving back market reign to the bears, but in case the bulls can push past it, 1877.1 would be the next target, and above here we also have 1905.4 & 2 very important levels for the long-term outlook: 1923.8 & 1962. A top very close to either should be viewed as an opportunity to sell, for the medium or even the long-term. Breaking above 1962 is highly unlikely under the current technical outlook, but in case it happens, initial target would be 1990.4 ahead of higher, maybe much higher, levels!
Support:
- 1715.9: Fibonacci 50% for the recovery from Sunday night crash lo.
- 1700.1: Marji 71.4% for the recovery from Sunday night crash lo.
- 1689.6: Fibonacci 61.8% for the whole rising move from the COVID lo 1451.3 to the historical high 2075.1.
- 1659.2: Dow 2/3 for the whole rising move from the COVID lo 1451.3 to the historical high 2075.1.
- 1629.5: Marji 71.4% for the whole rising move from the COVID lo 1451.3 to the historical high 2075.1.
- 1584.8: Fibonacci 78.6% for the whole rising move from the COVID lo 1451.3 to the historical high 2075.1.
- 1540.5: Marji 85.7% for the whole rising move from the COVID lo 1451.3 to the historical high 2075.1.
- 1522.4: Fibonacci 88.6% for the whole rising move from the COVID lo 1451.3 to the historical high 2075.1.
- 1451.3: The COVID lo.
Resistance:
- 1755.5: Fibonacci 50% for the drop from Wednesday “Clarida-comments” hi.
- 1773.5/1788.2: Fibonacci 61.8%/Marji 71.4% for the drop from Wednesday “Clarida-comments” hi. This area is also important because it is just above the broken trendline on the daily & weekly charts.
- 1814.4: Fibonacci 88.6% for the drop from Wednesday “Clarida-comments” hi, which is also very important because in the coming few days it will be very close to the falling trendline from June hi.
- 1830.4: Fibonacci 38.2% retracement level for the whole drop from the historical hi.
- 1877.1: The 50% retracement level for the whole drop from the historical hi.
- 1905.4: Marji 57.1% retracement level for the whole drop from the historical hi.
- 1923.8: Fibonacci 61.8% retracement level for the whole drop from the historical hi.
- 1962: Marji 71.4% retracement level for the whole drop from the historical hi.
- 1990.4: Marji 85.7% retracement level for the whole drop from the historical hi.
Trend:
- Short-term: DOWN, as long as we are below 1773.5/1788.2.
- Medium-term: DOWN, as long as we are below 1830.4.
- Long-term: DOWN, as long as we are below 1962.
Good Trading & Good Luck!
Munther Marji CMT