GOLDMAN SACHS: Gold got rejected at a key level and could be setting up for a big drop
Gold has had a solid 2017, but Goldman Sachs says its looks like things could be about to change.
The yellow metal has raced to a gain of more than 10% so far this year as the US dollar has stumbled amid President Donald Trump's inability to deliver on campaign proposals like repealing and replacing Obamacare, slashing taxes, and infrastructure spending. Increased political tensions with North Korea have also provided support for the safe haven. But, the charts suggest the trend is changing.
Goldman's technical analysis team of Sheba Jafari and Jack Abramovitz note that gold's test of the key level $1,377/$1,380 level was thwarted and that it's an "important place to watch for reversal" as it "included the previous high from Jul. '16, 38.2% of the entire downtrend from '11 as well as an equality target from Dec. '16."
As for how far the precious metal can fall from here, Goldman says we could see a retest of the late 2016 lows near $1,100, which would make for a drop of more than 13% from current levels.
"It's now likely in the C wave of an ABC (or ABCDE) pattern since Jul. '16," the Goldman team writes. "If true, it's on track to forming another three wave decline which at very least comes close to testing the previous lows from Dec. '16 at 1,123. It could extend as far as 1,105; but shouldn't run much further than there (given the corrective nature of the setup)."
The one thing that gold bulls have going for them is that it appears the late 2015/early 2016 lows look like they will hold.