Pattern-Replication In Gold

No two markets are ever the same, but because the emotion of fear — fear of losing, and fear of missing out (greed) — iswhat drives all markets, there are patterns left behind in the historical trading data that tend to replicate. When it comes to gold, fear plays an important role in its trading and in the formation of historical price patterns.

Gold has been replicating a pattern from 2013 for the past 10-months. The chart below, highlights the similarities of these two patterns. Notice that, in each case:

  • the 20-week moving average has crossed below the 200-week moving average (green ovals)
  • the RSI has dropped out of a pennant formation of its trend-lines and is now rising
  • the MACD is rising after making a bull cross-over
  • the stochastic is over-bought
  • the ADX momentum has peaked and is dropping back.

A couple of days ago, gold was turned back by resistance in the $1290-$1300 zone, which is defined by the 62% Fibonacci retrace of the April to August decline , and the psychological level at $1300 (chart below).

If gold closes above the $1300 level, then the pattern will be broken. Otherwise, we expect the pattern to continue to replicate with a similar zig-zag decline as witnessed in 2013 (chart below).

Gold’s rally since October has been part of the generalized “fear-trade” that has taken hold. However, we think that over the next few weeks this fear will dissipate, and that gold will lose its bid.

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Forty years of private equity trading, and still learning.

Forty years of private equity trading, and still learning.