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In our previous article from 12 Feb 2018 on precious metals, Higher Gold To Silver Ratio is Bad for Precious Metals, we posited that “contrarily to the mainstream analysts bullish view we believe that the bulls raging and pawing the ground will most probably crack it and fall in a bull trap”.

We now provide an update for the gold bear case:

XAUUSD Weekly Price Chart

On the weekly gold US$ price chart we observe it is following the path of least resistance after failing repeatedly to break the $1,370 level and is now breaking below the weakest and last line of support. The diverging volatility envelop foretells more downside to come.

XAUUSD Monthly Price Chart

On the monthly price chart we can observe how many times the resistance (red line) has been tested but without breaking, first in March 2014 then in July 2016 and more recently in every one of the first four months of the year, which is an overwhelming sign of strength. The slightly lower slopping resistance line rejected the gold price lower in a low volatility environment, which should be expected to catch up with the lower volatility band ($1,178 for now) over the next few months.

XAUUSD Quarterly Price Chart

For the gold price to fail at the $1,170 price level should be no surprise since this it hit against the upper volatility band with the volatility itself now in the initial stage of being compressed, a situation that should be expected to last for several more quarters before a stronger price move develops, with the additional risk of a non-crossover event between the 7-period and 23-period moving averages. We will carefully monitor this event since if it becomes confirmed until the end of the year it will be a strong bearish signal for the gold price to accelerate its slump below the lower volatility band, which we expect.

XAUUSD Yearly Price Chart

Finally the yearly price chart shows that the bubble-shaped volatility envelop should now progressively close with the 7-period moving average acting as a resistance and turning down. The gold price is heading in direction of the rising 20-period moving average ($891 presently) and it should take several years before this corrective move is over and until the next leg up can develop.

Conclusion

The very long term (yearly) gold price trend is still bullish but the long term correction of the previous bull run is far from being over and should develop over the next couple of years. We expect to see $1,000 before we can see $2,000 again.

The bear scenario will remain valid as long as the $1,270 level does not break.

Disclosure

I/we presently detain physical gold I am/we are short XAUUSD.

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