Gold futures finally gave back a share of the gains made over the last several weeks, tumbling more than $70 an ounce during Friday's session. The sell-off came after gold put in a short term top at the record high near $1,817 per ounce. As the stock market stabilized and fear of a continuation of the meltdown abated, profit taking in the precious metals emerged quickly. Despite the tumble, the price of gold still remains well above the $1,700 per ounce price and well into the record territory set during the month of August.
This plunge and the mild recovery from intra-day lows set up a Channel Down chart pattern on the 15-minute time interval, with the session close coming right at the topside resistance of $1,748 per ounce. The minor up-thrust through this level was enough to initiate a low momentum buy signal for a test of the $1,751 to $1,756 target area, which may be the first stage of an eventual retest of the $1,800 level.
Volatility is expected to remain extreme, as the dramatic range of last week clearly illustrate. The short-term chart patterns will be useful in establishing support and resistance levels within this range. Targets both higher and lower are likely to be overshot to some degree as the market struggles between profit-taking and speculative buying, with the backdrop of the equity and currency markets sure to influence the overall longer term trend from these levels.
Given the depth of the pullback, a retracement to the $1,800 level would likely require a resumption of panic selling on Wall Street, or a major exodus from the US Dollar, or some combination of both. Alternatively, an influx of buyers into the precious metals could also be encouraging a short squeeze as limited supply becomes rapidly consumed by large investors looking to hedge their risks. Considering the impressive strength of the bull market in gold, short-sellers may be slow to enter even on hard breaks such as this.
Traders will be watching the Channel Down chart pattern support near $1,700 per ounce as the week begins, in the event that the initial breakout target is reached, or if the upside projection fails and a new wave of selling comes into the market.
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