Signs of the next leg up in XAUUSD?

Gold price well placed for next rally to trade higher

I posted this before, I want to do it again “Really don’t see how XAUUSD is down trend/has not reversed“.

July last year following Brexit, I wrote that XAUUSD printed a new 52-week high, that this was really a sign of bullish reversal. In conjunction, XAGUSD signalled the same. Major gold miners printed the same price action (see Barrick, Newmont price action). In my opinion this is a confluence of signals that XAUUSD’s previous down trend from 2013 – 2015 is over.

This is a weekly chart of XAUUSD from December 2005 to present. Salient points:

  1. Light blue boxes paint year to year price action.
  2. Up trend from 2006 – 2011 shows series of higher 52-week highs and higher 52-week lows.
  3. 2012 was an ‘inside’ year.
  4. Down trend started in 2013 with a bearish expansion i.e. lower 52-week low.
  5. Subsequent 2014-2015 seen as sequence of lower 52-week highs and lower 52-week lows.
  6. With recent new 52-week high the day after Brexit, price terminates 2013 – 2015 down trend.
  7. We are looking at beginning of uptrend movement.
  8. 13-week, 26-week and 52-week exponential moving averages are printing.
  9. These averages describe quarterly, half-yearly and yearly movement.
  10. Whereas the 52-week ema was acting as resistance between 2014- 2015 (see inverted arrows), it is now acting as support.
  11. Golden cross of averages visible here.
XAUUSD weekly chart from Dec 2005 to 20 July 2016

XAUUSD weekly chart from Dec 2005 to 20 July 2016

 

Here’s a chart of XAUUSD captured today.

Weekly line chart of XAUUSD from 2007 to 12 January 2017

Weekly line chart of XAUUSD from 2007 to 12 January 2017 | Tradingview.com

These are key features I want to highlight. Please follow bullet points below on the chart↑.

  1. Between 2007 – 2011, XAUUSD was moving up. The green boxes highlight year to year price action. In an up trend, price was printing new 52-week highs and new 52-week lows in a series of higher highs and higher lows.
  2. Between 2013 – 2015, XAUUSD was moving down. The pink boxes highlight year to year series of lower 52-week highs and lower 52-week lows. In the middle of 2013, a bearish expansion i.e. price broke below 2012 low terminates the up trend established between 2007  - 2011. 2012 was an ‘inside’ year (inside 2011 high and low). Without printing new levels, 2012 was a consolidation year and should be counted as part of the 2007 – trend.
  3. Between 2013 – 2015, an equidistant channel was a prominent feature.
  4. The equidistant channel was terminated in early last year. We can see now that the channel top which used to cap price as a resistance became a support (see label 6).
  5. Just as 2013′s bearish expansion (or new 52-week low) terminated the up trend from 2007, last year’s 52-week high (or bullish expansion) terminated the down trend from 2013 – 2015. In my opinion, this movement can be considered the first wave of a new up trend.
  6. XAUUSD has thrown back to find support. This is very typical retracement. Once this retracement leg is done, we will see a new leg up which can take XAUUSD higher than $1375 (last year high).

Here is the same chart of XAUUSD labeled in a series of highs and lows commonly used to identify trend in practical technical analysis lessons for beginners. The overlay of year – year price action green for up years and pink for down years reinforce the observation.

XAUUSD trend visualised in series of highs and lows

XAUUSD trend visualised in series of highs and lows | Tradingview.com

Not a reversal if these conditions not kept

In my opinion, signs that support a next leg up in price of gold are present. Consider this sequence 1) we are a potential higher low stage – if this is true, then end of this move could push XAUUSD to higher high i.e. > $1375. To confirm my bullish observation, price needs to fulfil only these 2 conditions:

  1. Do not form new low, do not go below$1046.30 which is 2016 low.
  2. Form new 52-high, break 1375 (2016 high) to continue higher high, higher low sequence ideally before end 2017.

 

Might be one more leg down in the near future

Note: This way of visualising trend in boxes is not confined to year – year price action only. A similar technique can be applied on a quarter to quarter basis (see chart↓). Based on q-on-q action which shows the down trend being in charge, we can expect another leg down to find out where support truly is.

XAUUSD trend visualised in series of quarterly highs and lows

XAUUSD trend visualised in series of quarterly highs and lows | Tradingview.com

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Soh Tiong Hum is Director of TerraSeeds Market Technician Pte Ltd. TerraSeeds is a trading educator in Singapore since 2005.   Soh's Twitter account @sohtionghum was ranked #23 out of The Top 70 Twitter Accounts To Follow In 2015 by MahiFX.   Disclaimer notice: "I do not have a financial advisor's license. I am not qualified by any regulator to give financial advice. I do not know you the reader. Your investment means and motive may be different from me. My posts here are based on observations and meant for education. I am not responsible for for any consequence from your actions."
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