July 28, 2010

Updated Gold Chart: Strong Support

Gold’s recent weakness hasn’t changed our outlook for the yellow metal one bit – we’re as bullish as ever entering the final 5 months of the year, and the action in the CDNX lately confirms our view that Gold is near a bottom. Tonight, BMR’s technical analyst takes a fresh look at the chart for Gold:

Gold is sitting on strong support and is an excellent position for a near-term turnaround.

John: The price of Gold (continuous contract) opened at $1,162 today, traded as high as $1,166, dipped to $1,156 but closed at $1,164 – up $2 on the day. Gold continues to pound the support level of $1,160 which is holding up very well. So tonight we take a look at the 3-year weekly chart and try to determine what has happened and what we can expect in the near future.

Looking at the chart, we see on the left hand side a large mauve circle enclosing the trading period between Aug./07 and Dec./08. This was the period when there was a serious economic crisis affecting the economies of almost every country in the world and what we see is Gold’s reaction to this meltdown of markets and economies. First, Gold rose from an Aug./07 low of $650 to a Mar./08 high of over $1,000. Then over a period of 7 months to Oct./08 it suffered a 5-wave correction to return to around $680 from which point it started to recover to trade again in a stable market.

From Dec./08 to the present day, Gold has traded within an upsloping channel except for a 2-week “bull fake” and a 5-week “bull trap” as shown on the chart. The top blue line of the channel is resistance and the green lower line is support which has been tested on at least 10 weekly occasions, thus validating it as true support.

Today’s trading was right on that support line and also at the chart level support of $1,160 (horizontal short green line). This is a very strong support position for Gold.

Let us look at the indicators:

The RSI(2) is <2 which is considered an extreme position and usually means a reversal is close – bullish.

The Slow Stochastics has both the %K and the %D heading lower but above the oversold region, indicating that there is still time for another test of the support line – neutral.

The ADX trend indicator has the +DI (green line) above the -DI (red line). The ADX (black line) trend strength indicator is pointing down, confirming that the bearish trend is weakening – slightly bullish.

Outlook: Gold is sitting on strong support and is in an excellent position for a near-term turnaround