Gold Closes Below Important Support Level

February 20th, 2013
in gold

by Erik McCurdy, Prometheus Market Insight

In September 2011, our computer models predicted the likely development of a long-term correction in the gold market. The top formed precisely as expected and the subsequent correction developed into a bullish consolidation pattern, favoring a resumption of the secular bull market from 2001. However, when prices returned to congestion support in the 1,660 area at the end of 2012, we noted that this support level would need to hold for the formation to retain its bullish character. Earlier this week, we observed that gold had moved below congestion support at the 1,660 level on the weekly chart and noted that a weak close today would constitute a confirmed breakdown. Gold closed sharply lower today, confirming the breakdown and changing the character of the consolidation formation from bullish to neutral.

Follow up:

Click to enlarge

It should be noted that this type of consolidation formation is a very “healthy” type of long-term correction, indicating that underlying buying support for the secular bull market remains strong. However, the breakdown this week suggests that a resumption of the long-term uptrend is not imminent and the next test of bull market health will likely occur at the lower boundary of the consolidation formation near 1,550 sometime during the next several weeks. Therefore, it will be important to continue monitoring the gold market closely.

Note: We will identify the key developments as they occur in our daily market forecasts and signal notifications available to paid subscribers. Try our service for free.

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