It was a rough night for gold bugs, with the market down $27. However, this chart has been playing right out of the Fibonacci trader's song book recently and it's holding another potential support level so far today

Monthly Gold Chart

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To set the scene with the big picture chart. The $1131 low in gold back in November rejected the 61.8% Fibonacci retracement of the whole trend from $680 to $1920.  For harmonic pattern traders, this was also and AB=CD move as outlined on the chart above. These 2 things create the possibility that this was a significant low. Obviously we've had a nice bounce since then but rejection of this 61.8% retracement level means there could be quite a bit more to come.

Daily Gold Chart

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The Fibonacci and harmonic pattern scenario continued after rejection of the $1135 level. The subsequent rally was also an ABCD move. In this case it peaked at the 78.6% Fibonacci retracement leve while the "C" to "D" move was 127% of the length of the "A" to "B" swing. 127% is a Fibonacci ratio

Gold 4 Hour Chart

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With this history in mind, it's interesting to see that last night's decline found the 38.2% Fibonacci retracement level of the latest swing up and has also potentially completed another ABCD pattern where CD = AB*127%. As shown on the daily chart, the potential significance of this area around $1252 as a support is enhanced by the fact that the 200 day moving average is also at this level.

So what if this support level is rejected?

If we start to head up again there could be a number of possibilities. Under the most bullish alternative, the current downward correction is over and we are on the way back above $1308. This might be pretty positive for ongoing bullish momentum because 38.2% is only a shallow correction and if that is all we get it suggests buying interest is still pretty strong.

A second alternative would be that we have simply completed the first leg in a deeper downward correction. Any rally from here could be followed by a deeper swing down that will take us below the last night's low. One clue to whether the bullish alternative applies might be whether any rally gets past the 78.6% retracement shown on the chart below. If it does it's less likely to be a retracement and more likely a strong move that will take us beyond$1308

For completions sake a third alternative is that gold might start to form some consolidation pattern like a triangle with a base at this 38.2% level

For swing traders, using 4 hour charts, any of these 3 alternatives would suggest the potential for a rally from current levels if gold starts to show signs of rejecting this support by moving past the high of the latest large red candle around $1266

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