Gold Reversal Imminent?

Gold has been relatively supported for the past 2 trading days, ever since price tanked last Friday due to a much stronger NFP print which resulted in USD strengthening immensely. This rally may be a temporary pullback – a rather common occurrence especially after such an extended bearish move. However, there are reports that physical traders are buying up huge quantities of the yellow metal just above 1,200. 1,200 is also the estimated cost price per ounce it takes for miners to extract and refine gold. As such, based on the laws of economics, should gold prices hit below 1,200, miners will no longer be incentivized to produce more gold, resulting in a lower physical output and hence higher prices. Of course, commodities derivative products can be totally disconnected from the underlying physical price (Oil Futures, I am looking at you), but it will be highly difficult for ETF gold prices or Futures/CFDs to push lower should the 1,200 physical price not budge.

Weekly Chart
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Hence, given this outlook, the pullback in Gold prices may easily become a stronger correction rally. From a technical perspective, Price does not really have any immediate resistance, with 1,330 the closest on the chart. Stochastic readings also suggest that a bullish cycle signal may occur soon, with Stoch lines pushing above the signal line.

Should price clear 1,330 this week, the likelihood of the Stoch reading clearing 20.0 would be high, which will form a proper bull cycle signal to open up bullish targets closer to 1,400. Furthermore, should price manage to reach above 1,300, there will be the formation of a Morning Star, which will increase the likelihood of a strong bullish reversal.

Hourly Chart
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The short-term chart shows a ceiling at 1,260, but price is currently within the consolidation zone between 1,240 – 1,260, and even if the price falls lower from here, it does not necessary invalidate the rally from 1,210. To be sure, Stochastic readings suggest that a move lower from here is likely with the Stoch level closing to push below 80.0. However, price may be able to find some support via the rising Channel Top and even if that is broken, a Channel Bottom will be able to provide an additional level of support. With the Channel bottom already clearing the 1,240 level, it becomes even more unlikely that Gold bears will be able to reach the consolidation floor, and we could possibly see price actually rebounding higher from there with Stoch levels in a much healthier non-overbought level.

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