Why This Rally may be Fool's Gold

Why This Rally may be Fool's Gold
Why This Rally may be Fool's Gold
Why This Rally may be Fool's Gold Getty Images

After traveling up above $1360 in early September, the gold futures market has fallen hard over the past few weeks. Going into early October, this market eventually completed a near $100 drop down to the $1263 area.

However, after making that low on Friday of last week, this metal has been rallying up to critical levels this week following a weak U.S. Jobs Report, which was followed by weakness in the dollar.  The question is, will gold hold on to its recent gains?

We look for resistance at three key levels.  The chart below highlights the past three weeks of movement for this market.  The current market price, which is $1292 (marked in blue), has been an important pivot for this market, acting as both support up to two weeks ago and resistance since then, and we expect it to serve as resistance again. 

Next, we are looking at a potential downward trendline marked in red.  This trendline is beginning to take shape and suggests that resistance will take place at around the $1296 level.

Above those two levels, we would look for the next point of resistance at the key $1300 area.  This level completes the resistance zone marked by the chart's grey shaded region.  Only if price were to break through this third resistance area would we consider this a truly bullish market.

We expect gold to find resistance in these three areas and at least attempt to make lower prices after reaching them.   For our downside targets, we will first look for gold to reach the 50% retracement from this week’s high to last week’s low, just below $1279; and elow that, we would target the $1263 low from Friday of last week.


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