Gold has had a fantastic run in the past few months, so much so that it is showing a parabolic move lately, virtually vertical line up. This kind of move is not sustainable and sooner or later, it will need to take a rest. As expected, gold is finally hitting the ceiling at least for the near term and turning back. A 5% decline within a day a few days ago must be quite painful for those who are chasing it lately. But I think more pain is likely to come in the near future.
This was what I wrote about 2 months ago when gold topped over around $2075. Here is the chart for gold at the moment. As you can see, it has dropped roughly about 11% since Aug. As I said back then, I wouldn't be surprised to see gold shedding off 20-25% from its recent top. But this is just based on the historical experience and we all know TA is more an art than a science with no certainty. Based on this chart, gold can continue to drift down towards its 200 DMA around $1730ish, which is also a strong support for it from its breakout level back in May/June. On the other hand, its momentum indicators like RSI and MACD have already reached their bottom near the oversold territory and as such, it's hard to argue for a much lower level to go at the moment. Also taking into consideration the current quite fluid situation with the very uncertain election prospects that may last for a few months, gold could turn out to be a safe haven in the turmoil.
There is another wrinkle in the equation, the US$ trend. At least in the short term, gold tends to go inversely with the dollar. Right now, the dollar is poised to shoot up. Look at the US dollar via UUP… In other words, there is a good chance that US$ will go up from here that may negatively impact gold.
Putting all together, it is not a clear cut situation as a couple of months ago that gold was clearly topped over for an immediate downturn. Right now, it is more like a no man's land where it can chop around for a while and may go either direction. My bet is that it is much closer to the bottom and has more potential to go up from here but it won't be a straight up line.
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