The active patterns on the gold charts are predominantly bullish, but there are good reasons for caution at the moment. The larger reason is that the historic move from $681 to $1923 during 2008-11 has retraced only about 32%, which seems shallow. The corresponding decline in price has been less than 21% — much less than the 34% price decline of 2008. If the 1526.20 low (basis April) is going to hold, then the chances are that the price consolidation below the all-time high is likely to take significantly more than the five months that have elapsed so far. The more immediate reason for caution is the lack of a meaningful pullback since the 1526.20 low. We have not yet seen a 25% retracement of the rally up to 1765.90, a percentage at which we might begin to regard a pullback as a BC leg, although 30% seems even better.
While we’re thinking about retracement percentages, let’s not forget the 38.2% Fibonacci value. That would bring us to 1674.30 vis-à-vis the current rally. To retrace the 2008-11 move by that much, gold would have to trade at about $1449 an ounce. Traders should be aware of a 1763.20 midpoint and its 1820.10 sibling ‘D’ target, as well as bearish pivots at 1714.70 (P) and 1690.10 (D). The latter midpoint is not well hidden in relation to prior lows, but the 1690.10 target is, so if we see an accurate reversal at that level, we’ll know why, though most other traders won’t. (Posted by Doug “harry” McLagan)