This week has been rough on the gold and silver market bulls, after they had enjoyed successes dating back to February, when the present near-term price uptrends began. Downside price corrections in existing uptrends can be painful for the bulls, but they are a normal occurrence in all traded markets. Importantly, the price uptrends on the daily bar charts for gold and silver are still in place and have not been broken. More strong selling pressure in the near term would likely do such, to then begin to suggest near-term market tops are in place.
Let’s use some Fibonacci analysis and numbers to determine at what price the downside correction in gold might end, and at what point the downside correction could turn into a new and bearish near-term price downtrend, which would then begin to suggest the market has put in a near-term price top.
For me and for other veteran traders/analysts, there are three “Fib” price trend retracement levels that are the most important to monitor: 38.2%, 50% and 61.8%.
For June Comex gold futures, a 38.2% price retracement from the February low to the contract and record high scored in early April, at $2,448.80 is the $2,283.00 level. A 50% Fib retracement is at the $2,233.00 level. And a 61.8% retracement is at the $2,180.00 level.
Here’s how I gauge these key Fib retracement levels, in an existing price uptrend. A 38.2% retracement is a key support level. If prices hit that level on a downside correction and then rebound smartly, it’s a clue that there is still substantially more price upside to come, including the likely setting of a new for-the-move high. A downside price correction to the 50% retracement level and then a rebound suggests the market has more upside to include a retest of the for-the-move high, but maybe not a new high being scored. A 61.8% retracement, or below, calls into serious question the sustainability of the near-term price uptrend. Even a price rebound off the 61.8% retracement should be viewed with caution on the price uptrend being able to be restarted. It’s also at this point a price downtrend may have already developed. Stay tuned!