Rising interest rates and a strengthening dollar create formidable headwinds for the shiny yellow rock.
I remain optimistic for the entire precious metals space, but hope is not a viable trading strategy – especially if gold undercuts its 2011 highs.
Some gold bugs may find it difficult to accept, but gold’s a short if and when it decisively closes below its prior commodity supercycle peak.
And it’s trading back at those former highs today…
Let’s review the levels.
Check out the monthly candlestick chart of gold futures:
I understand the August candle is incomplete. It doesn’t bother me.
I’m not analyzing the current month’s candlestick. Instead, the prior-cycle peak from 2011 holds my focus.
The monthly chart simply provides the most precise depiction of that crucial level.
Notice gold has managed to hang tough – five months and counting – since it reclaimed those critical former highs last March.
It retested those highs in May, June, and August, three of the last four months.
Bullish bias aside, the more the bears test this level, the higher the likelihood it will break.
It’s do-or-die for gold bugs as sellers pound support.
What can we consider a “decisive close” below our level of interest?
I want to give gold some wiggle room, so my level stands at 1,900.
That’s below the June pivot lows and a key retracement level at 1,910. And it’s roughly $25 south of gold’s 2011 peak.
I like taking a shot at the short side of gold on a break below my risk level, targeting 1,800.
The tactical downside target will come much faster than many expect if gold drops below 1,900, as its fall will accelerate if the US dollar gains upside momentum.
Honestly, 1,700 could easily be in the cards as gold futures carve out a potential right shoulder:
The possibility of further sideways action makes sense as yields and the US dollar hit higher.
To be clear, I have no idea how the coming months will unfold for gold or any other asset. And I make no assumptions.
It’s relatively simple: My outlook for gold turns lower if and when I witness a daily close below 1,900.
Bigger picture: Gold and other precious metals need more time.
The US dollar and interest rates will likely dictate how much time is needed.
