One of the benefits of working with trusted partners at Tricio is that James, John and I come at markets from different areas of expertise. We are all familiar with the different skill sets that we have, but James as our Head of Investment Solutions and John as our Chief Economist, don’t usually look at market price action the way that I do as Chief Strategist. So when gold prices spiked higher last month but didn’t break to new highs l saw this as a bearish incident.
Back when I ran the European technical analysis team for MMS International (part of McGraw-Hill S&P then) we had 10 technical analysts in London, Frankfurt and Paris and more technical analysts at offices around the world. We communicated throughout the day with each other and were trained to spot market price reactions to big levels and potential patterns so that we could alert our clients (over 10,000 Telerate/Reuters/Bloomberg etc. dealing system customers). One mantra that a colleague and I picked up from a seminar that we attended was ‘If it can’t go up, it will go down’, which is both simple and seems to happen a lot more often than it should.
In this case, the big level to watch for me became the $1,620/$1,600 per oz. area from September – November 2022 where gold buyers stepped up in a big way last year. Why? The upside trigger at the 2020 $2,070/oz, area is clear. The rejection of the attempt to break this level though shifted the focus to downside risk. The $1,600/oz. area is key as a potential top confirmation. What is the likelihood of this being tested? Good question!
The weekly chart below, with 13 and 50-week moving averages shows the key $1,600/oz. area as the horizontal red line. The rising yellow line near $1,940/oz. is the short term support line in focus at the moment. A break below this would leave the 50-week moving average (green line) attracting near $1,825/oz. If gold prices can’t regain their mojo and post new USD highs – with plenty of press coverage on China and other countries demand for gold, global risk demand for gold and of course the de-dollarisation of the global economy, end of fiat money etc. serving as tailwinds, then the froth may well come off this metal.