In the last update, despite being extremely overbought, gold was expected to advance to even higher levels, for various reasons, principally the COT readings and the bullish volume pattern. I gave a target in the $1900 area, and that target was very nearly attained on Friday when gold hit $1881 intraday, before reacting back to close well off its day’s highs.
Gold is now monstrously overbought and has finally caught the attention of the mainstream media who are all over it. These factors alone are regarded as making the probability of it reversing soon very high, and if we look at the charts we can see good reasons why it should react back shortly.
On all its short and medium-term oscillators gold is now horrendously overbought. We can see that on our 6-month chart with gold now super critically overbought on its short-term RSI, with it having been critically overbought all this month to date on this indicator. Meanwhile on its more medium-term MACD indicator it is now massively overbought – these conditions being reminiscent of silver late in April. In addition it has opened up a now huge gap with its moving averages.
Although it did not qualify as a bearish shooting star, the candlestick that formed on Friday, with its long upper shadow, is viewed as an indication of exhaustion, or near exhaustion, and thus as a warning. After further consideration of this latest chart it is suspected that an intermediate Head-and-Shoulders top could be forming in gold as shown on the 2-month chart below, with the price possibly having hit the high of the Head of this pattern on Friday, after the Left Shoulder formed earlier in the month, around the 10th. The volume pattern supports this hypothesis, with very high volume going into the Left Shoulder and high but lesser volume on the rally into the suspected Head of the pattern late last week.