In September of last year, our analysis predicted the development of a meaningful correction in gold. The long-term high formed as expected and the decline broke below cyclical uptrend support in May. However, the breakdown was not followed by a move down to new intermediate-term lows below congestion support at the 1,550 level and the correction subsequently developed into a consolidation formation.
The Gold Currency Index (GCI) has also formed a consolidation pattern and it has begun to positively diverge from gold. While gold in US dollar terms remains well below the high in November 2011, the GCI closed above its comparable high this week.
As we note often, charts do not always have a compelling story to tell, but it is important to listen to them when they do. The developing consolidation pattern on the weekly chart of gold favors an eventual resumption of the bull market and it will be important to monitor price behavior closely during the next several weeks for the next signal with respect to long-term direction.
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