Since I last discussed the state of gold two weeks ago, the yellow metal has done just about exactly what i thought it would and reached my downside targets. Now, it’s time to take another step back and evaluate what might be in store next.
On June 19, gold — as measured by the SPDR Gold Shares (GLD) exchange-traded fund — was just dangling at support of the 50% retracement of the rally from the 2008 intermediate-term lows up to the 2011 peak. While from a medium-term time frame, gold appeared to be getting closer to a bottom-building phase than anytime since the downward acceleration began in the spring, I suspected that a break below the then-immediate-term support could usher in the $127.50 level and possibly the $114-$115 area.
After snapping support soon thereafter, GLD reached my $114-$115 target on June 28 before starting a sharp intraday bullish reversal rally.
The $115 area, from a long-term point of view, corresponds to the important 61.8% Fibonacci retracement level of the 2008-11 rally, and thus for now offers a good reference area of support. After having reached this area, gold might finally be in a position to start a bottom-building process.
As it pertains to trading the SPDR Gold Shares now, I suspect the yellow metal will enter a choppy sideways period with wide swings as it tries to establish a better bottoming range.
Now a look at the daily chart: Right after hitting my $114-$115 target range, GLD bounced strongly last Friday with a bullish outside day, then continued yesterday with follow-through buying. As discussed above, I suspect this bounce could be volatile, but a retest of the $130-$131 area, which was previous support, might be in the cards. This area also could coincide with the 50-day simple moving average (yellow line), and thus offer a confluence resistance area of sorts.
Ultimately, I suspect any further near-term bounce to be part of a longer bottom-building phase, which will not be for the faint of trading heart.
Serge Berger is the head trader and investment strategist for The Steady Trader. Sign up for his free weekly newsletter here.