Gold consolidates above $1800 per ounce

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This week Tuesday gold futures traded and closed above $1800 for the first time since 2011. After trading to an intraday high of $1829 yesterday, today’s trading activity can be best characterized as short-term profit taking. This is not unusual for a market that has been gaining value the way that gold has been recently.

Gold ascending above $1800 occurred as a series of tops in which prices would form a peak and the form a base at that new higher price level. We have seen this type of orderly progression to higher pricing on multiple occasions when gold is in rally mode. Typically, when this occurs a former major resistance level becomes the new support level. I believe we are seeing this occur currently with the former receive assistance of $1800 now becoming a strong support level.

This rally began its climb to historic levels in the middle of March, this in response to the global pandemic. Gold prices began to trade higher moving from $1460 to $1788 per ounce. This rally was followed by a period where pricing became range bound with the former resistance level of $1680 becoming support, and the new yearly high price at $1788 becoming the new level of major resistance.

On June 4 gold traded to the lower end of the trading range around $1680 and began to move higher. On July 23 gold effectively closed just below $1788. From that point up until today’s trading activity we have seen gold pricing methodically moved to higher ground as it broke and closed above $1800 per ounce on Tuesday.

This recent rally in gold can be best characterized as a period of price increases followed by sideways trading action. Now that we have gold effectively trading above $1800 per ounce it seems logical that that pattern of higher pricing followed by consolidation will continue and is now poised to reach the very pinnacle it set almost two decades ago and this time plant its flag.

Our technical studies are forecasting that gold could trade as high as $1920 by the end of this rally. Our studies are based upon a combination of Elliott wave and Fibonacci extensions. Using Fibonacci extensions, we begin at $1382 and conclude at $1788 and labeling that as the range of third wave. We then start the fourth wave that corrects pricing down to about $1640. Lastly, we extend the third wave by 0.618%. The study suggests that gold prices could trade as high as $1920.80.

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