The rapid recovery after this first major setback for the rally suggests the top may not yet be in. While the push lower was dramatic, the willingness for speculators to jump in at the lower end of the price and drive it back above resistance at $1,790 per ounce suggests the bulls still have the upper hand.

The technical outlook serves as strong confirmation that the trend remains towards higher prices to come. Last week's drop was a textbook breakout from the large Channel Up chart pattern illustrated here on the 240 minute time interval, and highlighted in last week's Commodities Update.

After a final retest of support at the top of the channel near $1,915 per ounce, gold reversed sharply to test the bottom end of the channel. A modest bounce ensued, with a second test of trend line support failing at the $1,830 level. The result was a very fast sell-off with no retracement until the swing low at $1,702 per ounce. This one-way move of about $130 per ounce reached the target projected by Autochartist from the point of the initial breakout, with a subsequent retest of the top of the target area confirming a shallow penetration of the zone.

Upon successful completion of this breakout pattern, the subsequent rally has moved gold back to the initial breakout point- a 100% retracement of the decline.

While range-bound trading between last week's lows and $1,830 is possible for the week ahead, a renewed buying frenzy is also highly possible given the current market environment. Gold will need to overcome resistance now created by the underside of the channel near $1,870 per ounce to regain it's momentum higher. If this occurs in the trading week ahead, it would encourage the probability that the harrowing drop was indeed a minor retracement in what remains the strongest bull market trend in the commodities complex.
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