Is gold ready for a brief pause?

September 3, 2013 08:55 AM

Now that gold has broken its daily cycle trend line, I think we can assume that the daily cycle decline has probably begun. My best guess is that we will see gold drop into next week's employment report and test the support zone and intermediate trend line around $1,340-$1,350.

We knew this was coming, as gold will enter the timing band for a daily cycle low on Monday, so no one needs to freak out. That being said, daily cycle declines need to make traders freak out to reset sentiment and prepare for the next leg up. So I suspect what is going to happen is that the bulls will try to defend that $1,400 level for a few days, followed by a very scary $30-$40 crash day that will bring gold back down to the aforementioned  support zone and form a final daily cycle low possibly on the employment report or the following Monday.

I don't pay as much attention to the point and figure charts as I used to. I probably should as it spotted the daily cycle top at the declining trend line perfectly. I think we will break through that trend line during the next daily cycle.

The bullish percent chart is also suggesting it's time for a minor rest. It hasn't reached levels indicative of an intermediate top yet (80%-90%), but the big surge off the bottom needs to pull back and consolidate before the next push higher.

All in all, I think traders need to prepare for some whipsaws early next week as the bulls try to defend $1,400, followed by a hard move down into the daily cycle low at the end of the week or the beginning of the next week.

Once we put this daily cycle bottom behind us I think the next daily cycle will test the April stop run level at $1,523. Then depending on what unfolds in the dollar we could very well see a fourth daily cycle higher that tests the QE 4 manipulation level at $1,700-$1,800.

About the Author

Toby Connor's website GoldScents is a financial blog focused on the analysis of the stock market and the secular gold bull market. If you would like to be added to the email list that receives notice of new posts to GoldScents, or have questions, email Toby.