Gold

There was hubris in my assertion last week that the perfectly formed head-and-shoulders pattern that has been taking shape since April would mutate into a 'surprise' breakout to the upside.  However, the chart shows what to expect if this forecast proves to be flat-out wrong. There is that possibility. The August futures would fall to 2204.20, completing the H&S pattern, before they could find traction. Moreover, the Auggies would become a juicy 'mechanical' short if they rally over the next week or two to the green line (x=2408.80).  The pattern is quite gnarly because of the double top, but I've seen this set-up work perfectly in the metals before (do NOT tell your friends if you plan to bottom-fish there, as you should). Rest assured, however, that even a $200+ dive as described would not mar the otherwise bullish look of the long-term charts. If you're still worried, here's a continuous monthly chart that shows the ostensibly distributive head of the H&S to be occurring above the 'D' target of a completed pattern stretching back 15 years. That is inarguably bullish no matter how nasty this correction gets.

August gold finished the week with a second consecutive bottom at the 2304.40 'd' target of the reverse pattern shown. Equally encouraging was a reversal at week's end that left the futures sitting more than $40 above the lows. Someone in the chat room argued that gold's $430 run-up earlier this year needs and deserves more consolidation, and that may be so. However, we should be alert to the possibility that this newly resurgent bull market will not be so accommodating of investors who want more time and better prices to do their bargain hunting. Bull markets in their dynamic stage are characterized by nasty swoons and quick recoveries.  In any event, our short-term bias should be bullish as the new week begins, and we should look for minor, uptrending ABCD patterns that reach or exceed their 'D' targets. Correspondingly, we'll also watch for corrective abcd patterns that surpass their midpoint Hidden Pivots. That is the most finely nuanced signal we have for flagging changes in larger trends.

Although we expect the bad guys to inflict as much pain and doubt on bulls as possible, Friday's $102 plunge seemed just a tad excessive.  The low fell a hair beneath early May's 2308 low and $4 above round-number support at 2300. Many bulls would have been stopped out there, lightening the load for whatever bounce occurs this week. It may include two or three false starts, since few bulls could have expected the selling to reach the untested levels that it did in a single day.  At best, the rebound will mirror the plunge that took place after August Gold slightly exceeded the record high 2471 achieved in mid-April. Any less than that will put the futures in jeopardy of falling another $100 to test a plateau formed there in March.

Gold has repeatedly resolved double tops in favor of bulls for many years, but always differently. The current pair of peaks is tightly spaced, giving the impression of weighty distribution. The 2530.40 rally target on this continuous weekly chart is viable nonetheless, and there is no reason to presume it won't be reached. But that does not preclude a sharp pullback first to the red line (p2=2071.70). It makes a logical target if bulls are to be rebuked yet again for their steadfast belief in the quaint idea of gold's historical primacy as money.  For now, let's draw our inferences from the lesser charts of August Gold, which currently provide an easy path down to 2300-2320. ______ UPDATE (June 7, 12:15 p.m.): Gold has in fact followed an all-too-'easy path' south, to a so-far low today of 2320.20. That is the upper threshold of the corrective range I'd forecast. However, I'd be surprised if the futures did not take out May 3's 2308.70 low and then diddle 2300 just for good measure. 

The drubbing that gold received last week after having slightly exceeded the 2449 high from mid-April was a rude shock. It created a series of impulse legs on the hourly chart, even if it missed being impulsive on the daily chart by a mile. The most troubling aspect of May 20's false breakout is that the rally fell $34 shy of the 2588 target I'd identified earlier, a Hidden Pivot related to a chart of higher degree. This trend failure will have taken enough bulls by surprise to add the weight of their shock and disappointment to current selling. It points most immediately to a test of the 2285 low recorded on May 3, so let's make that our minimum downside objective for now.  It would take a print all the way down at 2170.70 to generate a bearish impulse leg on this chart, but that is a prospect we needn't worry about at the moment.

Last week's spirited rally stalled somewhat above a 2419 pivot I'd characterized as a lock-up. The overshoot was $8, but that is sufficient to imply more upside this week to the 2488.90 target shown in the thumbnail chart. This Hidden Pivot resistance would complete a bullish pattern begun in 2019 from 1411, so it is an important number. However, if it shows little stopping power, we could infer that another bull thrust is coming, this time to the 2553.80 target given here previously.

The June contract has been routinely generating buy signals on the intraday charts, but the upthrust that ended the week created a strong signal on the daily chart. Judging from the ease with which buyers penetrated the green line (x=2352.40), more progress to at least p=2419.50 seems assured. That would leave the futures somewhat shy of the record 2448.80 recorded a month ago, but it would also 'magnetize' the peak to draw a test of resistance.  We should pay close heed to price action at p, since a decisive push past it would put D=2553.80 solidly in play.

June Gold ended the week in a dither about what comes next. Three marginal penetrations last week of the p midpoint support implied that sellers lack the conviction to push the futures down to D=2235.70.  We'll be better able to judge their mood and capabilities after we've seen how the markets open Sunday evening. In any event, it would take a decisive push above C=2364.40 to suggest bulls have the wattage to take out mid-April's record peak at 2448.80.

The 2488.90 target shown has a good chance of being reached, but there is no reassurance this will happen without an intervening, potentially severe, correction.  The future would become an appealing 'mechanical' buy on a pullback to the red line (p=2114.80), and an even more compelling one at, heaven forbid, x=1927.70. What are the odds it will turn out that bad? It's not worth worrying about at the moment, since a reverse pattern on the weekly chart suggests a pullback would not even reach the red line -- would in all likelihood go no lower than 2170.20 (a=2159.00 on 5/5). There is even a chance of perhaps 40% that last week's low at 2304.60 (basis June) will turn out to have been the correction low, since it coincides with p of the same reverse pattern.  For a clearer perspective on the larger pattern, here's a continuous monthly chart with a cleaner point 'A' low and a 2514.60 target that corresponds to the June's 2488.90. _______ UPDATE (Apr 30, 3:26 p.m.): With today's breakdown, the June contract has signaled more downside to at least p2=2280.00, but possibly to D=2251.90. The ability of either of these Hidden Pivot supports to resist the selling will give us a better idea concerning how the bigger-picture Hidden Pivot supports identified above will play out. I will continue to track gold and silver very closely, since chat-room interest has been high.