Posted on Friday, 1 November, 2013 by Graham Fox
The recent Gold volatility has investors asking the key question: where does it go from here? Many technicians are looking at the historical price movements to give some indication of where are the key support and resistance levels that will offer some guidance to the future direction. In order to gain an insight into the possible future direction of Gold, the following historical daily price data points (US$ Gold – calendar year) need to be considered:
| Year | Maximum (US$) | Minimum (US$) | Difference (US$) | (%) |
| 2008 | 1,023.50 | 692.50 | 331.00 | 47.8 |
| 2009 | 1,218.50 | 813.00 | 405.25 | 49.9 |
| 2010 | 1,426.00 | 1,052.25 | 373.25 | 35.5 |
| 2011 | 1,896.50 | 1,316.00 | 580.50 | 44.1 |
| 2012 | 1,790.00 | 1,537.50 | 252.50 | 16.4 |
| 2013 | 1,602.50 | 1,378 | 314.50 | 16.3 |
Data Source: World Gold Council – http://www.gold.org/investment/statistics/gold_price_chart/
For the followers of the Fibonnaci numbers, (Leonardo Pisano Bigollo c. 1170 – c. 1250) the key data points are:
| Date | High (US$) | Date | Low (US$) | Difference (US$) | 38.2% | 50% | 61.8% |
| 05/09/2011 | 1,896.50 | 24/10/2008 | 692.50 | 1,024.50 | 1,436 | 1,294 | 1,152 |
| 05/09/2011 | 1,896.50 | 28/01/2011 | 1,316.00 | 580.50 | 1,674 | 1,606 | 1,537 |
From the above analysis, when we look at the long term high/low data points, the Gold price has broken down through the first key support area of $1,436. The market normally looks to test this level and may bounce back from the lows but typically not hold above this point and continue the down channel to test the next support level at $1,294. This is not recognised as part of the fibonacci series but significant never the less. If this level is breached and any recovery cannot hold this level then the Gold price is expected to continue the down trend to test the $1,152 level which would be expected to hold under this scenario.
In the short term, the Gold price has broken down through all key data points and should now be influenced by the longer term support levels. This is probably why the Gold price has been so volatile given that all the short term data points have been breached.
The Gold price is in decline with a target price of $1,152. We would expect that the $1,436 level will be tested on the bounce back but it is unlikely to be sustained. If this level holds then it would signal a short term bounce may be possible (sometimes termed a dead cat bounce) however the $1,537 level is not likely to be breached. Remember the 3 year average Gold price is close to this level at $1,520 which will also have an influence on any pull back.
If the Gold price cannot hold on to any gains above the $1,436 level then the down trend is still in play and the downside is likely to be tested again down to the $1,294 level.
This would present a good buying opportunity however the old saying: ‘the trend is your friend’ will influence spot traders and they may wait until the market has bottomed and traded sideways for some time before re-entering the market and buying Gold.
The central bank of Cyprus intending to sell Euro 400 million worth of Gold has spooked a soft market and this together with investors selling Gold to re-enter the equity markets has led to a sharp fall in the Gold price over the past few months. Gold still has a place in a diversified portfolio and background factors such as central bank buying from the likes of China and India are likely to support the Gold price around the key data points and especially in the second half of 2013, over the Indian wedding season.
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