The gold price reached the long-term resistance target projection level of $1,360 before consolidating and retreating. The retreat offers a buying opportunity for an uptrend continuation back to $1,360 and higher. There are four technical features that suggest a bullish rebound.
The first feature is the strength of the underlying uptrend. This is shown with the Guppy Multiple Moving Average (GMMA) indicator. The long-term group of averages is consistently well separated. When prices dipped in June 2016, the long-term group did not develop any compression. This shows good investor support.
The current price dip has also not caused any compression in the long-term group of averages. This shows there is strong investor support for the trend. Investors are buyers when there is any price weakness.
The second feature is the recent minor support and resistance level near $1,290. This is not a strong resistance feature. It is important because it is also near to the upper level of the long-term GMMA. This provides two support features for any retreat in the gold price. This strong support provides a good base for a rally rebound and uptrend continuation.
The third feature is the behavior of the short-term group of averages. They are developing some compression but this is a slow retreat. The compression is not sharp and rapid so this suggests simple trading activity rather than signaling a change in the underlying trend. The compression behavior is similar to the temporary retreats in April and June.
The fourth feature on the weekly gold chart is the breakout from the fan trend line pattern. The four downtrend lines have a common starting point from the high in October 2012. This pattern gives early warning of a substantial and sustainable trend change so investors are confident this uptrend can continue.
The first upside target for gold at the historical resistance level near $1,360 has been achieved and has been followed with consolidation behavior. This consolidation is part of a longer-term uptrend behavior so traders should watch for a rebound rally and retest of the $1,360 level. Aggressive traders should buy the rebound rally as it moves towards $1,360. Cautious traders should wait for the price to move above $1,360 before they enter the market. The upside target is near $1,580.
We used the ANTSSYS method to trade this rally and the continuation towards $1,580.
There are important changes in the structure of the gold market that make the move above $1,360 and towards $1,580 more hazardous and volatile. Only seven sovereign nations own more physical gold than the U.S. gold exchange-traded funds (ETFs).
This structural change in the market means gold demand is now also closely linked to brokerage account margin calls as ETFs are a derivative trading instrument.
Daryl Guppy is a trader and author of Trend Trading, The 36 Strategies of the Chinese for Financial Traders –www.guppytraders.com. He is a regular guest on CNBCAsia Squawk Box. He is a speaker at trading conferences in China, Asia, Australia and Europe.