Gold Price Forecast: Higher Prices Following Retest

Monday, November 11, 2019

fine gold bars

Gold saw a huge sell-off last week: the precious metal was down by $49 or 3.2% to close at $1,463 as of the final trade on the New York COMEX on Friday afternoon.

During declines as we witnessed last week, it can be helpful to remember the big picture: gold broke out of a six-year basing pattern below $1,434 per ounce last August. After six years of grinding prices before then, it is unlikely that the final top is in yet after a single one-month surge above the resistance zone.

What we are witnessing now is a retest of the breakout. A retest is simply a term which describes behavior in which the market is literally asking former buyers: “Are you sure you meant to buy back then?”

Once the retest is complete, higher targets are expected:

Retests: Be Careful

We cannot predict the exact price at which gold will bottom for this retest. As such, and as painful as the first real correction of the year is, there is significant risk to not being invested at this point.

In strongly bullish markets, retests will not come fully back to their breakout points. They will leave those expecting an exact test waiting forever. The upper boundary of gold’s resistance zone came in at $1,434, and so it is conceivable that this retest will not come all the way back to that level.

In less bullish markets, retests will marginally violate the original breakout point. Such markets will genuinely test the patience of investors, by slightly dropping below the expected resistance à turned support zone.

In gold’s case, the lower boundary of the former resistance zone was $1,350, and so in a worst-case scenario we would be looking at a market to come back toward $1,350 or even slightly below, before accelerating strongly again.

Gold Prices Zoomed-In

By zooming into the intermediate-term, we can narrow down the probabilities for the retest. Chart first, discussion follows:

Fibonacci Retracements Added to the Mix

In addition to the (black) resistance à turned support levels mentioned above, there are two clusters of Fibonacci retracements which occur at or near these same support zones:

  • The 61.8% Fibonacci retracement of the May 2018 – September 2019 surge comes in at $1,450 (light silver line).
  • Slightly further down, both the 50% Fibonacci retracement of the same surge (light silver), and the 61.8% retracement of the entire August 2018 – September 2019 advance (dark silver) come in at $1,415 and $1,410, respectively.
  • Further down still, the 38.2% Fibonacci retracement of the May 2019 – September 2019 surge comes in at $1,379 (light silver), and the 50% retracement of the entire August 2018 – September 2019 advance comes in at $1,363 (dark silver).

Finally, the primary rising trend from the August 2018 bottom comes in at $1,330 (blue)… so it does not provide support in the present situation – not yet, that is: the support line is rising and will meet with the $1,434 support zone by the second half of 2020.

Trust: we are not the only ones watching these confluences of support levels centered on the low/mid-$1,400’s.

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On Strategy

Our strategy is to average in to a portfolio of positions as this retest is occurring.

We want to average down as the retest process is unfolding so that by the time gold gets back to its recent September highs ($1,560 spot / $1,566 futures), we will be holding mostly profitable positions.

Some may wonder: why not wait to buy all positions until the final low of the retest?

The answer: because no one is able to correctly time the exact bottom of a retest.

The point in worth reiterating: in strong markets, retests will not fully come back to their breakout points. And so it is possible to wait forever for a precise low which never actually occurs.

2008 – 2010 Gold Example

Let us remember the 2008 – 2010 gold example, which saw an 18-month resistance zone à breakout à retest scenario as part of the pathway toward 2011 highs. Was the correct strategy to sell during the retest?

Long-term investors should take some comfort in the present situation: it would be extremely rare for a 6-year base breakout to end with a simple one-month surge. We are now in the retest process. Investors may learn more about our current holdings at Will you be brave enough to build your portfolio into these final lows, or will you bail during the retest?


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Christopher Aaron

Christopher Aaron began his career as an intelligence analyst for the CIA and Department of Defense. He served two tours to Afghanistan and Iraq between 2006 - 2009, conducting pattern-of-life mapping for military leaders.

Mapping shares similarities with technical analysis of the financial markets because both involve the interpretation of repeating patterns found in human nature. He is the founder of iGold Advisor, providing research on the precious metals, and iGlobal Analytics, featuring technical analysis of the global capital markets.

Christopher speaks regularly on the cyclical patterns found within the financial markets and on international policy. He has been featured in the New York Times and NPR news amongst other publications.