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Gold breaks below $1680 yesterday, closing below a major level of technical support

Commentaries & Views

Yesterday’s gold closed below the support level at $1680. This was the first instance since gold broke above that price point in April 2020. The yellow rectangle on the left-hand side of “chart 1”, a weekly bar chart of gold illustrates the break above that level. It is marked with a large letter” R” on the weekly gold chart below.

Following the break above $1674 that support level was successfully tested on multiple occasions, labeled “support 1” is marked with a green rectangle, it occurred between May and July 2020 when for nine weeks traded near or at that low and close substantially above.

What followed were multiple instances when gold traded as low as $1680 and recovered. These areas are marked support 1, 2a, 2b, 3, and 4. Up until yesterday every attempt to breach and traded below 1680 was unsuccessful. That is what makes yesterday’s price move below that support level so significant on a technical basis.

Traders can view recent action as either an extremely rare opportunity or an utter breakdown and failure for gold to move substantially higher. Recent action by the Federal Reserve has had the net result of rising yields in US debt instruments and dollar strength. However the question becomes whether gold will break substantially to lower pricing or as it has in the past recover and move substantially higher. According to our technical studies we are looking at a glass half-full and not half-empty. In other words, traders looking to buy the step will face two obvious outcomes; either exceedingly great success, or exceptionally dangerous failure.

Personally, I believe that the glass is half-full and as such has a tremendous profit potential. However. I must also acknowledge that if this strategy is incorrect, the damage will be enormous.

Because the risks and rewards are so great I believe the most prudent action would be to see if gold trades closes above $1680 at the start of next week. If that occurs it would be a strong indication to initiate a long position in December gold. More to follow next week.

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Wishing you as always good trading and good health,

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.