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  • Kunal Bothra

    Market Expert, ET NOW
    Kunal Bothra has over 10 years of experience in financial markets. With expertise in understanding markets, and competency in technical, behavioural, and statistical analysis, Bothra is one of India's finest technical analysts. Known to be an excellent stock picker, he was earlier with the Edelweiss Group and LKP Securities.

Gold price charts suggest a trailblazing rally ahead of at least $250

In the last breakout for gold, the rally was to the extent of almost $250-300.

Last Updated: Dec 28, 2019, 01.38 PM IST

Commodity Summary

It is believed that history may not repeat itself, but it definitely rhymes. Such a rhyming action is now being observed on the gold price chart. Such a synchronised rhyming pattern is generally observed when an asset class is witnessing a strucutred uptrend, and not random buying/selling. That’s generally Phase One when an asset class generally tries to move up. Euphoria is the last stage, but looking at the charts and patterns, that’s nowhere in sight as of now.

There are four key parameters which hold significance for this recent gold chart:
  1. A classic trending channel – consolidation breakout (price patterns)
  2. Similar price moves within the trending channel – consolidation pattern. (behaviour patterns)
  3. Timeframe almost similar in comparison (time patterns)
  4. Fibonacci extension rules adhered to. (Fibonacci extensions)

Let us see how these individual parameters have shaped up for the gold chart and what do they portray:

1. A classic trending channel – consolidation breakout (price patterns)

This is a clear indication of the ongoing uptrend, in the formation of a Trending Channel, followed by a consolidation, which are classic signs of uptrend in an asset class. The Trending Channel is almost similar to the prices moving exactly within the band. Interestingly, the consolidation is triangular in nature and it has not been prolonged.

2. Similar price moves within the trending channel – consolidation pattern. (behaviour patterns)

A closer look at the patterns of price action within the channel suggests the price behaviour is almost synchronised. There is a midway rangebound price action within a channel, leading to a breakout with two relative tops of RSI divergence. On both occasions post this pattern, the asset went into consolidation mode.

3. Timeframe almost similar in comparison (time patterns)

This is again an example of a coherent price uptrend, with three months of strong price uptrend, followed by four months of rangebound / sideways price action. A short run and deeper breadth is an indication that the asset class' uptrend is not overheated, and there is a likelihood of a marathon uptrend, rather than a sprint.

4. Fibonacci Extension rules adhered to. (Fibonacci Extensions)

If we consider points A-B-C in the above price graph, and project a Fibonacci Extension line, with an important significance towards the 161.8% price projection resistance, we see gold rose up till exactly those levels and then cooled off to consolidate. The 100% Fibonacci projection zone became the support zone. This again is an indication of a structured price uptrend.

According to these four classic parameters, I am of the belief that gold is exhibiting a rythmic price action behaviour. In the last breakout for gold, the rally was to the extent of almost $250-300, from the $1,280 point. In the current context with the most recent breakout seen, if there is a similar price projection, then gold could rally at least another $250-300 from the breakout, leading to $1,700-1,750 levels.

(Investors are advised to consult financial advisers before taking an investment calls based on these observations)

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