Alessio Rastani gives his gold price outlook after the recent bounce from near $4,000
Alessio Rastani, trader and market analyst, shares his view that gold's recent rally is a bear market bounce rather than the start of a new uptrend.
Summary
Alessio Rastani presents a short chart analysis of gold, arguing that despite the metal's recent rally from near $4,000, the broader correction is not over. He contends that gold has only retraced to key resistance levels — the weekly 21 EMA and 50 SMA — which is typical behaviour in a downtrend, and that a three-wave corrective structure suggests the rally is not the beginning of a new bull run. His central claim is that gold will likely make new lows below $4,000 in the coming months, and that he is personally looking to acquire more gold at those lower prices. He acknowledges the possibility of being wrong, noting that markets are nonlinear and unpredictable, but maintains that from experience and chart structure, the bear market in gold has not yet ended.
Key Takeaways
FULL TRANSCRIPT
Gold's recent bounce and the key question: has the bottom been reached?
Alessio Rastani: Just a quick update on the chart of gold. The metal has had a nice rally and bounce. We managed to come down to just near $4,000, and gold has rallied off from that level. I'm going to cover the chart of gold very quickly and give you what I think is likely happening here. Has gold bottomed, or is it likely to have much lower to go?
Welcome back — on a beautiful sunny day here in Scotland. I came here just recently to attend a wedding, and Edinburgh is an amazing place to visit if you've never been.
So, the chart of gold. We've seen the metal manage to rally after it dropped to about $4,000 — just under $4,000, as you can see here. Then it managed to rally nicely, and many people seem to have already come to the conclusion that gold has bottomed and that we're now going to start rallying back to previous all-time highs — and probably go above $5,600 to $6,000, $7,000, much higher. That seems to be the general opinion among some people who are quite bullish on gold right now.
However, I actually disagree with this view. You probably remember, some months ago — in fact, back at the start of this year when gold was rallying and moving above $5,000 — I was warning that there was a significant risk of a big drop in the price of gold. We had seen extreme overbought conditions and extreme acceleration in the price of gold, which I covered in previous videos. So there was a strong risk of a pullback or a drop.
Why Rastani believes the bear market in gold is not over
Now the question is: has this pullback or correction ended? Has the bear market in gold ended? I seriously doubt it. That's because, usually after such parabolic rallies like we saw in gold, we typically see a significant correction down to the monthly 21 EMA — the 21-month moving average. We have not seen that as yet.
I actually don't think that the drop we've seen so far, from the all-time highs down to the recent lows, is the end of the correction or the bear market. Personally, I think this rally we're seeing — this recent rally in the price of gold — is what would typically be called a reversion to the mean. In other words, even in bear markets, we typically see rallies.
People are getting a little bit bearish, the correction is slowing down, so he's looking for a bounce as part of the corrective process — a rally in here. We're in that kind of environment where you're going to get sharp counter-trend rallies as well. There could be all kinds of squiggles, ups and downs. There could be a bounce in the short term, but overall we're still in a bear market.
So I think we have to be extremely careful about drawing the conclusion that the bear market or the correction in gold has ended and we're now moving straight back up to all-time highs.
Addressing the "always bearish" criticism
By the way, I realise some people watching this video are probably going to say, "Hey, Alessio, you're always bearish and negative on gold." First of all, that is not true. There have been periods when I've been bullish on gold. However, put simply, I believe that the correction or bear market in gold is not done. I think we have more to go this year — there was more downside to go.
But I think eventually, in the long term, can gold go much higher? Absolutely. So I am not permanently bearish on gold. I'm simply saying that for now, this year, I don't think this drop is done. I think the rally we're seeing is a typical bear market rally — in other words, a pullback reversion to the mean before we see significantly more downside to go. And I'm actually looking forward to acquiring more gold at lower prices.
The chart structure: resistance levels and the three-wave corrective rally
Now, of course, is it possible that gold may have potentially ended its bear market and is perhaps rallying back to its all-time highs? It is possible. We have to remember that markets, including gold, are unpredictable and chaotic and uncertain. So there's no absolute certainty in any analysis we do, and I could be wrong here. But generally, from past experience, it's my belief that gold has not yet ended its bear market, and I think what we're seeing here is a typical bear market correction — a rally which we typically see in any kind of downtrend or bear market.
One thing we have to remember: the rally so far from the lows has been a three-wave rally, so it's a corrective rally. As we know, three-wave rallies are typically corrections. So in my view, that's an ABC corrective rally we're seeing in the price of gold.
And remember, gold has only managed to rally back to some key resistance levels. For example, on the weekly chart, gold has rallied back to its weekly 21 EMA and its 50 SMA — the 50 simple moving average — which is very typical and normal. It usually happens in downtrends and bear markets, and that's a very important resistance level.
The $4,500 level and the outlook for new lows below $4,000
So my view is: as long as gold can remain below this resistance around $4,500, the balance of probability still favours more downside to come over the next several months. In other words, as long as gold holds that 50 simple moving average on the weekly chart and the 21 to 34 weekly EMAs as resistance, the higher probability is for gold to eventually drop down and make new lows below $4,000. I think in the next several months we'll likely see gold below $4,000, at much lower levels.
Now, again, let me repeat — I could be wrong here. There is absolutely no certainty in any market, because we have to appreciate that markets are nonlinear and chaotic. But generally, from what I'm seeing on the chart and from experience, my personal view is that the correction in gold is not done.
So personally, I think this rally we're seeing in gold is just a pullback wave — some kind of retracement after that major decline we had. And I think that in the next several weeks and months, we'll probably see gold drop back down to make new lows and continue the downtrend — below $4,000. That's my view.