Gold’s recent rally from the $1268 area lows has stalled, and the reasons for that are both fundamental and technical.

Double-click to enlarge this daily gold chart. 

Gold fell about $100 from the $1362 area highs as seasonally soft Chinese buying was accompanied by a collapse in Indian demand.

That collapse was caused by the “Know Your Client” rule imposed by the government on gold jewelry purchases.

The price decline was exacerbated by the “Golden Week” holiday in China. Also, the Chinese government chopped commercial bank reserve requirements. That created a huge “risk-on” mentality in global stock markets during what is normally a weak period.

As the Golden Week holiday ended, the US jobs report was released, and the Indian government killed the “Know Your Client” rule. 

Gold surged about $40 higher from the $1268 area Fibonacci line to the neckline of the head and shoulders top pattern.

Unfortunately, there isn’t enough demand to sustain the rally, and the short-term target of $1215 is still a probable one.

Put options are a nervous gold bug’s best friend, as I’ve repeatedly noted since gold traded above $1330.

Double-click to enlarge this long term gold chart.

In the big technical picture, the short term weakness is healthy.

There are several huge bullish price patterns in play on the weekly gold price charts, including the bull wedge pattern I show here. A pullback to the trend line is normal after a major breakout.

That pullback is in play now, and it is targeted to end at about $1215, which is also the target of the head and shoulders top pattern.

Double-click to enlarge.  

That’s another look at the weekly chart.  

In addition to the huge bull wedge, there’s an enormous inverse head and shoulders bottom pattern in play.

The target of that pattern is at least $1650.