Jan 09 2019

Gold – short term bearish but long term bullish

The yellow metal’s rally – which started in mid August 2018 (from 1159) – hit a roadblock as trading dawned in the New Year (just ahead of the 1300 mark). Gold has thrived as a safe haven asset during the recent times of uncertainty, due to the ever persisting US-China trade war and the sudden collapse in US equities.

A glance at the daily candlestick chart tends to indicate that gold’s recent Bull Run has been unidirectional and consistent, without any corresponding counter-reaction. On 3-4 Jan 2019, a Bearish Engulfing Pattern# is formed on the daily candlestick chart. Such a pattern, after an extended uptrend, gives the first signal of a trend reversal. The momentum indicators (RSI and Slow Stochastics) have turned gold overbought. There is a classic sell signal on the MACD and its Signal Line.

My sense is a short term corrective action in the yellow metal. First target is 1245 (38.2% retracement of the move from 1159 to 1298); subsequent target is 1230 (50% retracement of the mentioned move). Do not think, gold will have large downside beyond that – even though a short term corrective action is due, long term direction is still gold bullish.

If gold breaks above 1305 and forms a new high, the above short term judgement will be annulled.

# Bearish Engulfing Pattern: It is a two candlestick pattern: first day is a white candlestick while the second day is black. Body of the black candlestick completely engulfs the body of the first white candlestick. Such a pattern suggests that the black candlestick completely overshadows the white candlestick. Pessimism on the second day completely overwhelming the optimism of the first day.