Top Story

Gold’s Big Breakdown Hints at a Major Top, Could Expose 1200 in Time

As any gold bug would tell you, last year’s fourth quarter was a strong one, with the yellow metal gaining nearly 8% from October through New Year’s Day. The good times carried over into mid-February, when gold peaked near $1350, but the price action over the last two months suggests that a major top may have formed.

As the chart below shows, the first quarter’s price action formed a large “rounded top” (or a modified head-and-shoulders pattern). This pattern was preceded by a triple bearish divergence in both the RSI and MACD indicators, a clear sign that bullish momentum was waning through January and early February; now both indicators are in bearish territory.

With today’s 1%+ drop, the yellow metal is breaking to new year-to-date lows below the “neckline” of that pattern near $1275. A confirmed breakdown would project a “measured move” objective just above the $1200 level, with additional support near the October lows at 1181:

Source: TradingView,

From a fundamental perspective, the global shift toward easier monetary policy should act to support gold, though to the extent it’s driven by fears of an economic slowdown, it may be partially offset by decreasing demand for gold jewelry. As always, real interest rates continue to have an inverse relationship with gold, so continued signs of a slowdown in global inflationary pressures would help confirm the bearish technical picture.

Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.

The markets are moving. Stop missing out.