Can gold still reach $3000 per ounce or does the precious metal have bigger problems on the horizon? Let's delve into what happened this week and go over some update price targets!
Back in late Q4 I wrote - "Gold - 'Tis The Season For $3000?" where I laid out the case for the yellow metal to reach the $3000 mark by late Q1 or early Q2. As of this week gold has rallied from a low of $2,625/oz in late December to a high of $2,968, leaving it just $32 shy of the elusive round number.
However gold and other precious metals sold off sharply today despite strength in bonds which is normally a positively correlated asset class. Retail sales came in weaker than expected which gave bonds a lift (read here to see why a rally was likely regardless) and though metals saw an initial algo spike, they proceed to sell hard from open to close into the long weekend.
So are we set to short fall of our goal already? Well, let's not call it a Valentine's Day Massacre just yet. Already we are seeing top calls on popular social media outlets claiming the bull run is over but I believe there's plenty of evidence that we are simply beginning another minor consolidation phase before the ultimate target on this move (which I'll give out below).
As for today's action - the daily chart of gold left an ugly engulfing candle that failed to make new highs. To make matters worse Silver futures did not fare much better as we saw a massive rejection in the sell zone where bulls had previously failed to resolve a bull flag higher.
Why did this happen today despite supposedly bullish economic news? Well, I think it's most likely just due to GLD touching a major dealer exposure level for next Friday.
Options expiration for the month of February is around the corner and we can see that the $270 holds a massive call wall that dealers will want to protect. The main equilibrium is around the $260 handle so that is our likely pin for next week. Remember, markets are closed for the holiday so our opex cycle is shortened by a day making Friday effectively Monday for next week.
But with that in mind, we have seen heavy bear price activity like this in the precious metals market while doing no real damage to the underlying trend. Despite the dramatic nature of the daily candles, its important to realize that until proven otherwise, that still remains the case price may simply be due for some continued basing & digestion until it's ready for the last leg up.
Each of these reversals has simply led to temporary tightening ranges that ended in continued expansion to new highs. Even with the reversal today, gold still closed above it's 20 Day MA which still suggest that for now, the daily trend is still intact. Zooming out, there is in fact a bit of a reversal tail on the weekly chart despite the green close, however this may just be a case of gold getting too hot too quickly as we've now closed green each of the last 7 weeks. The underlying trend here is still extremely strong. The parallel spacing and bullish configuration of the moving averages (20 over 50, 50 over 100, 100 over 200) show us this, a technique taught in the Essentials Course.
From a technical standpoint, gold is a extremely healthy and until damage is done on the weekly trend there's no reason to think it can't go higher in time. Bears have to close the week below $2700 at a minimum to assert any sort of negation of the December breakout base.
Additionally, we can call back to seasonality as I did in the original article.
Gold futures typically top out in November, base in December, then breakout into February before a March digestion. Usually this precedes yet another high into early April. This here is partly why I thought gold would make it to $3000 by "late Q1, early Q2". So far, gold has followed this exact timing model almost exclusively. If this here is the start of a mid/late Feb dip, then we should look for basing action into March before the longer term high which would come some time in April. If this scenario happens (which I believe it will) then we can simply use measured moves on the previous expansions to determine our target: Note: The chart below is of spot price to avoid long term adjustments in futures contracts
If we go all the way back to the September 2022 low and simply measure the distance, we can see that this was able to predict the exact size of the following 2 bullish expansion periods. If this repeats, we'd be looking at $3,065 spot gold, which due to pricing on the April contract would potentially equal out to approximately $3,076 for gold futures (/GC) though in of course there's often overshoot and so price may simply decide to test the whole round number at $3,100. So overall, I don't see any reason to panic here as things appears to largely be on track. Again, at the minimum bears need to close the week below $2700 in order to do any real chart damage and even then, it will still be situationally dependent. I maintain by $3000 price target and have now officially upgraded it to the $3,076 area for sometime in April. Full disclosure: I am long though have already taken gains on UGL, AGQ, and SPPP. 🔐For access to premium trading content including swing trade alerts & live day trading room visit 👉 - https://www.carnivoretrades.com/
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