On the evening of May 3rd, gold rallied to $2085.40. However, this has been followed by a subsequent ~$150/oz decline. The reversal from a familiar price level (~$2,080) has led to the emergence of a potential triple-top, which is now evident on the monthly chart.
I’ve noticed some people wondering if such a thing as a triple-top exists in technical analysis. The answer is yes, they do exist. A triple-top, like the triple-bottom that gold hammered out last year, is a very real chart pattern.
The key ingredients for a triple-top are a preceding price uptrend followed by three highs that should be reasonably equal, well spaced and mark clear turning points in the chart. So far, the May 3rd high at $2,085 appears to have marked a clear turning point. However, we are talking about a monthly chart here so there will need to be further confirmation over the next couple months.
One important thing to watch closely for over the coming months is a volume expansion on any further decline. If this is indeed a real deal triple-top then we can expect the gold price to decline a further ~10% by year end. Furthermore, the volume during that decline should stand out on the chart.
It’s also worth noting that the triple-top pattern won’t be considered to be completed until a decline below the 2022 lows near $1625. Without an aggressive further decline over the coming months, the ‘triple-top pattern’ will begin to look more and more like a bullish continuation pattern. The clearly visible peaks near $2,080 only serve to build a taller wall of worry i.e is the gold bull market over? Will gold fall below $1,600?
On shorter time frames we are seeing the US dollar suddenly move into favor after being one of the most hated currencies in the world a month ago. The EUR/USD has declined a not insignificant 400 pips in the last month, from $1.11 to $1.07:
Sentiment on the US Dollar Index has moved into bullish territory, while sentiment on gold is back to neutral territory. Nothing remarkable enough to mark a high probability turning point in either market. However, the $1.0700 level in EUR/USD is an important long term support/resistance level that should be watched closely. A strong reaction around this level could provide valuable information, especially if we see a failed move below $1.07 that reverses sharply higher. Gold has historically had a strong positive correlation to EUR/USD and during gold’s May decline that correlation has grown stronger.
At present, a stronger US dollar implies a tighter Fed that is holding rates higher for longer. Something that is typically not favorable for gold. It will be interesting to see if the market’s newfound optimism for the economy and the strength of the consumer will be able to last beyond next Friday’s US employment report.
My two cents is that the ongoing correction in EUR/USD looks like nothing more than a standard correction within the context of a bull market uptrend that began last September. If this interpretation holds true, then the conclusion of the current correction should be close.
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