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Gold May Bounce From This Targeted Support Level

On December 12, we noted for readers of SafeHaven that gold appeared to be winding its way through a corrective move, and we suggested two support levels that could produce a bounce - 1668.70 and 1628.10. We also suggested that it was a good time for those wanting to be long gold to step aside, unless they were prepared to trade short.

Chart 1 - Gold's Corrective Move

Last week, gold reached the lower target support level and began an attempt at a bounce. That support level is also near a channel line we have been watching. So what is next?

Gold Reaches Lower Target Support Level

We see three possibilities.

First scenario: (Shown with green labels.) The lows in late May of last year completed a '(iv)' which was followed by wave 'i' of '(5)' up into the early October high and then down into a wave 'ii' of '(5)' which brought price to the present support level. Wave 'iii' up would follow into at least $1900.

Second scenario: (Shown with blue labels.) The high in October was a '(b)' wave, and we have just seen wave 'a' or 'w' of '(c)' of '(4)' complete. This suggests a minor 'b' wave up is due now. Targets for a 'b' wave are difficult to predict without seeing more price action. One rough estimate would be 50% of the last swing, which would be near $1714, but higher would be possible.

Third scenario: (Consistent with the blue labels.) A diagonal has formed, or is in the process of forming, coming down from the October high. At the completion of the diagonal, there would be a 'b' wave bounce, but ideally it would be halted before $1734 to form 'b' of '(c)' of '(4)'.

We lean toward the second scenario, because the advance from the May low looks more like an a-b-c move up rather than a clean impulse. However, a 'i' of a diagonal '(5)' up could make the first scenario work.

Scenario #3 is for all practical purposes similar to Scenario #2.

We should expect bounce for now, unless the trendline breaks.

 


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