Gold in US dollar terms peaked at $1377.50 earlier this month and has since corrected roughly 5%. Given the amount of confluence in the $1400 area it not surprising that gold ran out of steam just shy of the round number psychological level. In addition, the $1400 price level has been a target for a number of outspoken market commentators including famed hedge fund manager Jeffrey Gundlach.
The monthly chart of gold offers some perspective, especially the significance of the $1375-$1425 area:
The 2016 gold rally came within a few dollars of the 38.2% Fibonacci retracement of the entire 2011-2015 decline. More importantly with just a few days left in the month of July gold is at risk of forming a 'tweezers top' which is a bearish candlestick pattern denoting buying exhaustion.
Monthly patterns tend to carry more weight because of the longer time frame. As a rule traders should use longer time frame patterns and trends as a compass for shorter term trades. Therefore, a tweezers top at key support/resistance on the monthly is significant and should not be taken lightly. There are still a few trading days left in July, however, if things remain as they are this could mean that the 2016 gold rally will be taking an extended pause.
While upside resistance for gold is quite clear ($1375-$1425) there is a strong zone of confluence just below which has yet to be fully tested during the recent correction:
Previous resistance near $1300 lines up nicely with the rising 50-day moving average (currently at $1291). A hold of support near $1300 would be standard and quite healthy, whereas, a move below $1290 would turn the outlook for gold much more bearish.
Meanwhile, we are about to enter the most bullish two months of the year for gold historically:
Since 1997 gold has averaged a 4.3% gain during August/September, by far the best two month stretch of the year.
Will seasonal tailwinds prevail or has price peaked for the year?
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.