Support Lines For Gold

It is now pretty clear that gold has started at least an intermediate term correction. Two very strong down days on Thursday and Friday sent gold more than 10% below its all time highs, which is a correction that, historically, should not recover in just a week or two. And not speaking about silver, which got totally crushed and is now 40% below its all time highs.

So, now that I'm convinced that gold finished its three year bull run, I want to take a short break of trading and look at possible long term support lines for gold. Figure below is filled with trendlines but should be clear enough to read. As I expected gold finally got denied by the long term high channel line that was defined by the first two major tops back then in 2009. This week price also sliced through the blue support line connecting previous three intermediate tops, which means this line will now act as resistance in the future. I think that if dollar had not broken out so viciously out of its month long consolidation, gold would consolidate above the blue line and and break above the red line also. But this has not happened and now gold will have to find another support.

The next logical technical support is a black trendline that has held every intermediate decline all the way from March 2009 up to now. However, I do believe that this line will get violated. Gold has completed its climax top and when these break down, they break down hard, and tend to break the first few "logical" suport lines and convince everyone the bull is dead.

So, the next support line in case of black line violation is green trendline that connects previous intermediate top with previous intermediate bottom. If this one falls the ultimate major support is pink line, connecting an even older intermediate tops and bottoms. I don't even want to think about pink line violation at this moment, so I did not draw lower support lines. If price slices below this one, gold will not see new highs for several years for sure. A new trend will get established at the end, but broken parabolas are not as predictable as clearly established trends.

Speaking in numbers, I think the most probable price reversals lie at about:

• 1550 (black)
• 1510 (green)
• 1390 (pink)

We'll see if any of these numbers actually hold. As I said, broken parabolas tend to violate technical supports and establish a completely new trend. One thing I do know. It will be very difficult to spot the final bottom. I will be looking for specific signs that marked bottoms of past corrections. I will get to that when gold comes any close to forming a reversal pattern. For now it is best to be just an observer and wait for the right moment.