On 8 September I wrote about the fact that gold was “due for a correction” and that “we could see prices fall as far as $1,575 an ounce.” Now that the correction has happened we need to examine where the yellow metal might be headed next.
This first chart was the one I posted in the 8 September article. It showed the first leg down which would complete the bearish Double Top Reversal pattern followed by a fall to gold’s 150-day moving average.
This second chart shows how the move actually played out. As we can see once the pattern completed gold moved quickly lower slicing through its 150-day moving average (large circle) but closing well above it. The stochastics (lower circle) are now pointing up, indicating bullish price momentum.
As I stated in the original article “a price decline of this magnitude would not alter the long-term prospects for gold… In fact, a decent pullback would flush out many of the weak hands and would set the scene for the next leg up.” Now that the speculative money has left gold it can begin a period of sideways consolidation and although a retest of $1,600 is not out of the question I believe there is a good chance that $1,535 will prove to be the low and that by the end of Q1 2012 we will be looking at a considerably higher price.