Gold fell below the Nov. 27 low of $1138 in Tuesday’s session but it seemed to stabilize on Wednesday and there are signs that the sell off may be running out of steam.

This daily chart shows a good portion of the run-up over the past few months. The rally in gold really has been incredible and it’s no surprise that there has been such an agressive correction.

At the moment, very few people can conceive that the gold rally is over. It’s one of the strongest bull markets anywhere, so the question most often asked is: where will the rally resume.

Using technical analysis, we can see that gold rallied along the upper Bollinger Band nearly continuously for three months. A good target for a correction might be the lower Bollinger, which is just above $1100.
Another reason to target $1100 is the 50-day moving average (red line). A pullback to the 50dma would be a reasonable reaction after such a strong rally.

Another reason to watch the $1100 area is that we had some technical support from a mid-November correction. That falls at $1102.

The convergence of all this support makes $1100 an attractive place for orders.

In the event of a close below $1100, be prepared to see further gold selling. In no way would the uptrend be threatened even if we saw a fall all the way to $900. If, however, gold does break below $1100, the next obvious target is the 100 day moving average, which is at $1034 at the moment. The first Fibonacci retracement level (38.2%) comes in at $1020 as well.

Of course, the correction may have already run it’s course. Today’s session generated a doji star pattern on the daily chart. This can sometime be an early (very early) sign of a turnaround. In the day ahead, if we can see a rally above $1147, we could see gold making record highs before the year is out.

Gold breaks below the Dubai Low of $1,137/oz low reached on Nov 27 in reaction to the Dubai Debt news had taken place 2 days after the $1,194 record high. The fact that gold broke below $1,137 from a higher record ($1,226), could indicate a looming close below $1,090.