Gold in early stages of secular bull cycle

SINCE the start of 2017, gold has been moving perfectly in an uptrend manner as it formed a series of higher highs (HH) and higher lows (HL), which is the textbook definition of an uptrend. This immediate uptrend is moving in line with our expectations of gold forming a cyclical bottom back in December 2015 at US$1,046, and it is currently in the early stages of a secular bull cycle. Our cycle analysis has US$1,920 as the target for the current secular bull market.

More recently in August 2017, gold finally broke above the crucial US$1,300 psychological resistance area thereby forming another HH point within the uptrend. However, as the escalation from North Korea simmered down with the absence of missile tests, gold sold off and entered into a period of correction.

Gold began correcting off the US$1,352 resistance area since Sept 8, 2017, but a reversal back to the uptrend might be happening now. There is a confluence of support off the 200-day moving average, US$1,264 support area and a combination of 38.2 per cent and 61.8 per cent Fibonacci retracement levels that seem to be keeping a floor on price. After dipping marginally below that support area on Oct 6, 2017, buyers came in aggressively to hold the price up and succeeded in closing at the high of the day. As a result, a hammer was formed suggesting a reversal higher. If the hammer holds, the next higher low point within the uptrend will be established at US$1,260. A hammer is a bullish candlestick pattern that signals a capitulation by sellers to form a bottom to indicate a potential reversal to the upside.

Moreover, the subsequent bullish follow through on the following day broke the price above the downtrend line, signalling a shift in sentiment to the upside. Since 2017, gold has been progressing along the uptrend predictably after it goes through a period of correction. The bullish break of the downtrend line in March, May and July perfectly kickstarted the uptrend shown by the highlighted boxes, and a similar pattern is developing now.

Silver is also displaying a similar price action as it formed a Bullish Outside Bar rejection off the 38.2 per cent Fibonacci retracement level and US$16.56 support area on Oct 6, 2017.

With the bullish price action and rising bullish momentum, we expect gold and silver to resume moving back into the long-term uptrend. Gold should retest the US$1,352 resistance area next followed by the 2016 high of US$1,375 while silver bulls aim for the US$18.10 resistance area followed by US$18.50.

On the other hand, if the confluence of support off the US$1,264 area fails to hold, further limited downside might be expected. The next support area will be the US$1,200 psychological area where the previous HL point was located. A structural shift in the current uptrend will only occur if price breaks below US$1,200. At present, the uptrend is still firmly intact.

Disclaimer: Chartpoint is provided by Phillip Securities Research for information only, and should not be construed as investment advice.