Gold reached our next upside target range this morning, tagging 1280.70 a short while ago.  Recall from our February update [Update on Gold: Feb 10] we were looking for GC to test a TL connecting several tops since May 2013.

If [the trend line] is broken, then the white .886 at 1277.90 comes into view.  Note that it’s in close proximity to both the yellow .382 at 1286.30 and the purple channel midline currently around 1274.

The TL was broken later that day, and it was off to the races for GC, which tacked on 7.3% in the process.While I’m always happy when a forecast works out so well, I’m fascinated by why it worked out.

continued for members…

Here’s the daily chart, showing both upside targets.

Back to the “why” question…  Gold has generally been the anti-USD trade since the May 2015 highs.  The correlation has been strongly negative.  They fell back into a positive correlation between mid-Dec and the end of January, at which point they diverged wildly into mid-Feb.  Again, they started moving in sync again, up until two days ago.

This confirms that GC’s biggest gains, and interim highs, come when DX plunges.  When DX rebounds, GC generally sells off.  The rest of the time, it depends on whether GC is trading based on fear, inflation worries or — as is the case this morning — concerns regarding the imbalance between physical and “paper” gold (e.g. IAU.)

It’s safe to say that fear of a correction is rather low right now, with SPX up over 10% in the past several weeks.  There is some concern that inflation is on the rise — with CL up almost 40% since Feb 11.  And, this morning’s headlines that BlackRock has suspended issuance of IAU no doubt has gold bugs on edge.

Given that we’ve reached a natural reversal point, I’d be very cautious in chasing GC at this point.  If it acts like it’s reversing between here and 1286, I’d pay attention and not fight it.  Take the gains.  If it drops through the red channel bottom (currently at 1238) it could easily backtest the .618 at 1207.60 before bouncing higher.

If it pushes through 1286 and the purple channel midline — then there’s plenty more upside. The next major targets are the white 1.272/purple .382 combo at 1380ish, followed by the white 1.618/purple .500 at 1470-1484. GLTA.