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Technical levels not to be ignored on Gold

Technical levels not to be ignored on Gold

Gold COMEX:GC1!

While I am still a dollar bull and don't yet see no fundamental signs to change that position, I can't help but notice a $80 technical zone that may provide gold support in 2016. I had already noted $1110-20 as a possible support (old resistance from 2008), but I only just realized that $1110 is the 50% retracement from the 1976 lows ($101) to 2011's highs ($1920.8). Drawing a Fibonacci from the 2001 lows to the all-time highs gives us another 50% retracement level at $1088. This is of course a level that held in July with this year's lows so far at $1072.3.

We've already seen a minor bounce in gold prices from those July lows, but there hasn't really been much buying pressure behind that. We may need to see gold dip back down below $1080 (and possibly all the way to $1110-20) for the market to spring back into action. Such a short squeeze initiated within the technical zone I've highlighted would set the stage for a decent bull run at least over the medium term (3-4 months). This could especially occur if global economic conditions sour even further, pushing the Fed to shift course on it's interest rates forecast, leading to a significant decline in the dollar (all those speculative buys being purged from the market).

This is just a scenario that I find interesting, but I'll be adjusting my expectations according to economic data, price action and market sentiment towards the year's end. One last note: on a technical basis, a break below $1000 (more upside to the dollar) would suggest a further decline all the way to $700, which is also a major technical level that should not be ignored.