gold price prediction

Gold Price Prediction for April 2021

The below gold price forecast article is based on one of our premium gold analyses. Enjoy:

With gold jumping for joy during much of last week, Friday’s (Apr. 9) lesson in gravity also aligned the yellow metal with its triangle-vertex-based reversal point (indicating that gold has indeed topped right at it – on Thursday, Apr. 8). Furthermore, the collision also occurred alongside two other short-term bottoms (which are now resistance). And what does all of this signal? Well, just like the GDX ETF, gold’s near-perfect zigzag (a.k.a. ABC) pattern is indicative of a corrective upswing within a medium-term downtrend.

Case in point: the moves that follow such continuation patterns tend to be similar to the moves that preceded them. For context, the move that preceded the zigzag pattern was the January – March decline, during which gold fell by more than $150. Thus, a similar move could usher the yellow metal back to ~$1,600, which aligns perfectly with my initial downside target.

Please see below:

Even more ominous, during the January – March decline, gold quickly bounced above its previous high, invalided the move, then suffered a material drawdown. And with the yellow metal exhibiting similar behavior last week – jumping above its previous high before consolidating and falling below it on Apr. 9 – gold’s guillotine could drop sooner rather than later.

But how soon? It seems most likely that gold has already topped. But even if it didn’t, it doesn’t seem likely that it would rally well above its last week’s high. After all, there is strong resistance created by the previous lows (Nov. 2020) and highs (Apr. – May 2020) close to $1,770.

Also, please note that it seems that gold is moving in a way that’s somewhat similar to what we saw between mid-April 2020 and mid-June 2020. It’s trading sideways below $1,800 but above ~$1,660. Back in 2020, the range of the back-and-forth movement (size of the short-term rallies and declines) was bigger, but the preceding move was also more volatile, so it’s normal to expect smaller short-term volatility this year (at least at during this consolidation).

Why is this particularly interesting? Because both consolidations (the mid-April 2020 – mid-June 2020 one and the March 2021 – today one) could be the shoulders of a broad head-and-shoulders pattern, where the mid-June 2020 – early-March 2021 performance would be the head. The breakdown below the neck level – at about $1,660 – would be extremely bearish in this case, because the downside target based on the pattern is created based on the size of the head. The target based on this broad pattern would be at about $1,350 (I marked it with a thin dashed red line on the chart below – you might need to click on it to expand it for this line to become visible). Is this level possible? It is. When gold soared above $2,000, almost nobody thought that it would decline back below its 2011 highs (well, you – my subscribers – did know that). Gold below $1,500 seems unthinkable now, but with rallying long-term rates and soaring USD Index, it could really happen.

“Ok, but what price level would be likely to trigger a bigger rebound during the next big slide?”

Well, the 76.4% Fibonacci retracement level (it’s visible as the 23.6% Fibonacci retracement level on the above chart as inverting the scale is used as a workaround) also coincides with gold’s April 2020 low. Taken together, an interim bottom could form in the ~$1,575 to $1,600 range.

For context, back in early March, the yellow metal continued to decline after reaching the 61.8% Fibonacci retracement (visible as 38.2% Fibonacci retracement) level, while in contrast, the miners began to consolidate. Gold finally bottomed slightly below the retracement – at its previous lows. This time around, we might witness a similar event. And while the story plays out, the miners’ relative strength should signal the end of the slide (perhaps with gold close to 1,600), while gold will likely garner support sometime thereafter (at $1,575 – $1,580 or so).

Remember though: this is only an interim target. Over the medium term, the yellow metal will likely form a lasting bottom in the ~$1,450 to $1,500 range.

And why is that?

Well, if you analyze the long-term chart below, you can see that the yellow metal has invalidated the breakout above its 2011 high. More importantly though, with its rising support line (on the right side of the chart) also coinciding with the 61.8% Fibonacci retracement level and the 2019 and 2020 lows, ~$1,450 to $1,500 is the most prudent medium-term price target.

Conversely, if the 2008 analogue repeats – and a crisis of confidence erupts across U.S. equities – the PMs could move substantially lower. When combining an equity shock with a USD Index resurgence, the yellow metal could bottom at roughly $1,400 (or even ~$1,350). Similarly, while the MACD indicator (on gold’s 40-year chart near the top of today’s edition) signals a bottom in the ~$1,200 to ~1,350 range, to be perfectly clear, ~$1,450 to $1,500 is the most likely outcome.

For more context, I wrote previously:

If you analyze the red arrow in the lower part of the above chart (the weekly MACD sell signal), today’s pattern is similar not only to what we saw in 2011, but also to what we witnessed in 2008. Thus, if similar events unfold – with the S&P 500 falling and the USD Index rising (both seem likely for the following months, even if these moves don’t start right away) – the yellow metal could plunge to below $1,350 or so. The green dashed line shows what would happen gold price, if it was not decline as much as it did in 2008.

As it relates to the chart below, relative to 2011-2013, today’s price action is a splitting image. For starters, gold invalidated the breakout above its 2011 highs. Invalidations of breakouts are sell signals, and it’s tough to imagine a more profound breakout that could have failed.

Second, if you analyze the two white boxes (on the left side of the chart), the blue lines depict today’s short-term price action relative to 2013. As you can see, the movement is nearly identical. I copied the price performance twice, so that you can more easily see the similarity in terms of both the price and time.

Please note that gold delivered a final corrective rebound from the previous lows (so called dead cat bounce) before suffering its current weakness. And in 2013, the yellow metal did the exact same thing. As a result, the free-fall phase has already begun, and the medium-term trend remains down.

For more context, I wrote previously:

The odd thing about the above chart is that I copied the most recent movement in gold and pasted it above gold’s 2011 – 2013 performance. But – admit it – at first glance, it was clear to you that both price moves were very similar. 

And that’s exactly my point. The history tends to rhyme and that’s one of the foundations of the technical analysis in general. Retracements, indicators, cycles, and other techniques are used based on this very foundation – they are just different ways to approach the recurring nature of events.

However, every now and then, the history repeats itself to a much greater degree than is normally the case. In extremely rare cases, we get a direct 1:1 similarity, but in some (still rare, but not as extremely rare) cases we get a similarity where the price is moving proportionately to how it moved previously. That’s called a market’s self-similarity or the fractal nature of the markets. But after taking a brief look at the chart, you probably instinctively knew that since the price moves are so similar this time, then the follow-up action is also likely to be quite similar.

In other words, if something looks like a duck, and quacks like a duck, it’s probably a duck. And it’s likely to do what ducks do. 

What did gold do back in 2013 at the end of the self-similar pattern? Saying that it declined is true, but it doesn’t give the full picture - just like saying that the U.S. public debt is not small. Back then, gold truly plunged. And before it plunged, it moved lower in a rather steady manner, with periodic corrections. That’s exactly what we see right now.

Please note that the above chart shows gold’s very long-term turning points (vertical lines) and we see that gold topped a bit after it (not much off given their long-term nature). Based on how gold performed after previous long-term turning points (marked with purple, dashed lines), it seems that a decline to even $1,600 would not be out of ordinary.

Finally, please note the strong sell signal from the MACD indicator in the bottom part of the chart. The only other time when this indicator flashed a sell signal while being so overbought was at the 2011 top. The second most-similar case is the 2008 top.

The above-mentioned self-similarity covers the analogy to the 2011 top, but what about the 2008 performance?

If we take a look at how big the final 2008 decline was, we notice that if gold repeated it (percentage-wise), it would decline to about $1,450. Interestingly, this would mean that gold would move to the 61.8% Fibonacci retracement level based on the entire 2015 – 2020 rally. This is so interesting, because that’s the Fibonacci retracement level that (approximately) ended the 2013 decline. 

History tends to rhyme, so perhaps gold is going to decline even more than the simple analogy to the previous turning points indicates. For now, this is relatively unclear, and my target area for gold’s final bottom is quite broad.

Thank you for reading the above free premium-Alert-based analysis. Please note that the above is just a small fraction of what the subscribers to Gold & Silver Trading Alert enjoy on a daily basis. The full version of the Alerts includes multiple premium details such as the downside target for gold that could be reached in the next few weeks.

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Przemyslaw Radomski, CFA
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