Gold testing May support points

May 26 2016

Gold (weekly Basis)

One of the things we’ve discussed on the website as to whether gold had re-entered a bull market would be its ability to move above the 2015 high at 1308 and then a weekly/monthly close above 1322. The 2016 rally stalled at 1304 and now a pullback all the way to the 1222 area has taken place. While gold could very well be setting up to take out that all important area, we must still be cautious. Those price levels remain the most significant resistance for 2Q 2016.

With Dollar cycles potentially making a low in early-May - and the potential for global equities to accelerate lower into late-June - at least two potential deflationary factors could amplify this volatility into mid-2016 and create plenty of wild swings in Gold.

On the weekly chart, gold has support in the 1172-1190 area and should gold close below the March/April lows of 1205-1209, then it is likely that gold will go test that lower band of support. Any close below 1214 will favor a test of the weekly support points. Until gold moves above 1308 and closes above 1322, the confirmation that a gold bull market has regained composure must still be in question. Until that time it is not out of the question that the metals have seen their spring highs and a volatile choppy and overlapping correction until August cannot be dismissed.

Gold since the 2015 low

The first important support at 1243 gave way this week and price has reached the 2nd support area for May at 1215-1222. On the downside, a break of 1214 would favor a drop to the 1205-1209 area and then 1172-1180. On the upside, look for strong resistance now at 1243-1253 and then 1272-1282. Any close below 1222 on Friday leaves the downside open to further price erosion.

US Dollar

The other issue we`ve discussed was the seasonal aspects of the US dollar and the usually strong showing the dollar produces in May. As we can see by the chart, that is what has happened so far. Now the dollar has reached resistance in the 95.20 area and this is one spot where we must look for a potential high. In the short-term, the Dollar Index could spike up to its monthly resistance with the extreme upside target for May - at 96.13. That is just below the 50% rebound level - at 96.29. If so, it could wait until next week to reach that level.

Gold Cycles

The window for the blue cycle has closed and the next red cycle is due June 4th (plus or minus 72 hours). The 2 key support points were the lower 2015 support line and the upper 2016 line. As you can see, price was unable to hold the 1240 area and now price has returned to the 2016 upper line where it barely held support on Wednesday. The big question now is whether gold will move higher into the June 4th cycle or whether we will get an inversion and move lower into that date. A close below 1205 will warn a cycle inversion is in play and lower prices will be favored. The other thing to watch now is whether gold can get back above 1243. That should be considered the key resistance point at the moment. A failure near the 1240 area on any rebound could keep gold under pressure. That`s the next area to watch. Any close below 1205-1214 is a warning that prices can continue lower.

In summary, gold must hold 1205-1214 in order to get a push back up towards 1240-1250 and then we`ll see.