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:
- Light blue boxes paint year to year price action.
- Up trend from 2006 – 2011 shows series of higher 52-week highs and higher 52-week lows.
- 2012 was an ‘inside’ year.
- Down trend started in 2013 with a bearish expansion i.e. lower 52-week low.
- Subsequent 2014-2015 seen as sequence of lower 52-week highs and lower 52-week lows.
- With recent new 52-week high the day after Brexit, price terminates 2013 – 2015 down trend.
- We are looking at beginning of uptrend movement.
- 13-week, 26-week and 52-week exponential moving averages are printing.
- These averages describe quarterly, half-yearly and yearly movement.
- Whereas the 52-week ema was acting as resistance between 2014- 2015 (see inverted arrows), it is now acting as support.
- Golden cross of averages visible here.
Here’s a chart of XAUUSD captured today.
These are key features I want to highlight. Please follow bullet points below on the chart↑.
- 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.
- 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.
- Between 2013 – 2015, an equidistant channel was a prominent feature.
- 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).
- 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.
- 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.
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:
- Do not form new low, do not go below$1046.30 which is 2016 low.
- 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.