Gold Testing a Two-Year Balance Low

For over a year now, gold futures have been contained within an 11304-to-13078 balance bracket. Since January 2015, gold has been contained within an even tighter 11416-to-12320 range. Additionally, each weekly high over the past five weeks is slightly lower than the previous week's high, forming a five-week trend line. On Friday, July 17, 2015, gold took out both the 11416- and 11304-balance lows. Additionally, it was the first time gold broke 11300 since 2010. When a market tests the boundaries of a balance bracket, the two most likely scenarios are:

  1. Gain acceptance outside the balance and accelerate.
  2. Trade outside the balance, get rejected, and then begin a rotation to the opposite extreme of the bracket.

If the market gains acceptance below the 11304-balance low, then the downtrend is likely to continue. However, if the market takes out last week's 11639 high and breaks the five-week trend line, gold may take out all five weekly highs up to the 12031 reference.

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