Will price of gold reach $2000

The price of gold is the foremost question that I encounter these days. Among them, this question ranks number one: “Will price of gold reach $2000?”

This question usually comes from two groups of people. The first group is made of those who intend to sell gold but missed the chance to do so when the very sought-after metal reached a high of around $1920 back in September 2011. The second group consists those who see gold trading at much higher prices. However members of this group recognise that $2000 is the psychological resistance of gold price that must be penetrated. There is certainly quite a lot of anxiety experienced by individuals in both parties.

 

Price of Gold trending up every year

In my previous article ‘Gold rally accelerates; overhead resistance will determine pace’, I wrote that long term charts show

Gold price has rallied every year except 2008 since it broke out of a double bottom formation late 2002.

This is very bullish sentiment indeed. There is a simple way to visualize this statement. If you look at the chart of gold price from 2007 to present below, the blue shaded boxes show annual prices bound by opening in January on the left and December on the right. The high of each box shows the highest traded of that year and the low of each box shows the lowest traded. In the picture, it can be clearly seen that price traded in each year has never gone below the low of the previous.

Gold price monthly chart

Gold trades at higher prices each year; the low of each year has not been violated in following years

Gold has good chance to test $2000

So unless price of gold falls below 2012-low this year, investors can look towards a test of $2000. Any chance that we will see a bearish reversal pattern to reverse this uptrend? Not yet. Common reliable bearish reversal patterns display a common recurring sign i.e. a key resistance. Lets look at the following three simplified diagrams.

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Double top pattern

 

Double top reversal patterns show a clear horizontal resistance at the top. Price touches or tests this level twice and fails each time. Bulls become disappointed after the second try and start to sell leading to a reversal.

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Triple top pattern

 

Triple top reversal patterns also show a clear horizontal resistance at the top. Price touches this level thrice. The psychology of bulls are the same. Although failure at the second try did not deter them, bulls are disappointed and give up after failure at the third.

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Head and shoulders pattern

 

Although head and shoulders patterns do not have a horizontal resistance at the top, the resistance level might be found on the left shoulder. When a left-right mirror image forms with the creation of a right shoulder, the left-shoulder resistance comes into play. Failure to exceed the resistance leads to reversal.

 

No bearish reversal pattern can be seen at this point

The double top, triple top and head and shoulders patterns are major reversal patterns that account for most reversal of trends. From the monthly price chart of gold, they are not visible – not present. Will they appear later? Maybe. If I venture to make a guess, we cannot exclude price from printing a reversal pattern but only if it fails to pass $2000. $2000 becomes that horizontal level that might be associated with the 3 reversal patterns. So from here to there, price is very likely to give $2000 or maybe $1920 (2011 September high) one good shot.

 

Preconditions

  1. Bearish reversal patterns are commonly found at tops but not always. Therefore we are looking at high probability but not certainty.
  2. If price were to fall 52-week low now, sentiment might become bearish suddenly. Although this itself is not a reversal, the mood would be different for once since 2002 so a try at $2000 might be delayed.
  3. Last of course is that even if price will to touch and fail to break $2000 in the near future, it must not mean that price will certainly start to fall.
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