Gold Price Reaches Overbought Level

The recent big move in the gold price has moved gold into an overbought level on the RSI, as can be seen in the chart above. RSI, at 72.4305 on the daily chart is at its highest level since June-July of 2014.

MACD is also at levels not seen since around July of last year as well.

The last time MACD levels were this high the price of gold was over $1,300.00 per ounce.

At this point, the gold price is starting to look a little stretched.

On the above chart you can see Hurst Bands. The shaded pink area is the overbought area, while the green shaded area is oversold. The gold price has jumped far above the extreme level of the Hurst Bands. So, gold is extremely overbought. However, the gold price could remain overbought for multiple days, even potentially multiple weeks, so an overbought condition is not a guarantee that the gold price will reverse immediately.

What this does probably mean, however, is that the gold price could potentially struggle should it make it past the $1,295.40 (0.236 Fib Retracement) level and make a run toward $1,300.00 and then $1,350.00. At that point, as seen in the first chart, the gold price would be nearing the upper parallel line of the Schiff Pitchfork. I expect this to present significant resistance to the gold price moving higher.

Now, let's say gold were to overcome all of the overhead price resistance levels we have spoken of. After those levels, the next significant resistance level would be $1,392.60.

This coincides pretty nicely with the $1,395.40 level that was discussed in The Gold and Silver Cycles post. In that post I wrote:

If the pattern works like I think it might then I could see gold making another run toward $1,395.40 before moving lower again. I would then expect the gold price to have another echo move higher.

After moving lower again I would expect gold to stay in a multi-year channel between $1,077.00 and $1,274.00. The gold price probably doesn't break out of that channel until around 2022 or later when it will start a new bull market.

The post concluded with:

Beware the bear market rally until and unless the bull is confirmed. I won't have confidence that gold is in a durable rally until it crosses above $1,493.50 (0.50 Fib Retracement Level).  

My expectation is that gold will attempt a rally up to $1,390.00 or above. It's always possible it could stretch to somewhere above $1,400.00. Currently I believe that gold is going to turn back down somewhere near those levels. Should the gold price manage to move above $1,493.50, then I would have to reevaluate my reading of the long-term gold chart.

Bottom Line: Gold is oversold, but we may see the price continue higher for a while longer. Currently my expectation is that above the $1,390.00 level it will begin to encounter significant resistance and will likely reverse, although it may stretch out to over $1,400.00. Only a weekly close above $1,493.50 would cause me to reevaluate my long-term reading of the gold chart at this point.