Gold barely hanging on to support

Evening all,

I was getting ready a post on Friday regarding gold. I was making a case for continued downside in gold alongside equities and the Euro, when lo and behold, gold found buying pressure and ended the day 60 pips up! I immediately saved my post into drafts, and decided to look at the chart again. Is gold regaining its title as a safe haven in times of equity sell-offs? Did it ever hold such a title?

http://www.marketwatch.com/story/golds-having-an-identity-crisis-2012-06-01

Whatever the fundamentals may be driving gold price action, I have some words on the chart of gold.

A one-day move does not change any longer-term views; however, Friday’s  surge was large. When gold languished at the $1,550 area, I was preparing short set-ups to catch strong downward moves. Thank goodness I did not put in any market orders as gold found buyers all the way past the $1,600 level even. In the larger scope of things, gold simply did a technical rebound off major support just below $1,600. I drew a small black downward parallel channel to show that gold is still in a mid-term downtrend. Gold is also clearly below the 200-day MA. Finally, a red resistance line shows a support-turned-resistance level that is just above gold’s price now. These are obvious reasons to me to continue being a bear for the months ahead. And yes, I will lean towards the bearish side for the mid-term. In the days ahead, however, I will not be surprised by further upside. I have been keeping a very large downward parallel channel (in yellow below) on my gold chart. As of now, gold is around the middle of the channel, so based on this, we do not have any clear-cut bull/bear signals. In the next few days, if gold starts to exhibit a decisively inverse relationship with risky assets, I will bet on gold climbing to $1,700.

Zooming out, let us look at some important fibonacci retracement levels. I take the low as the psychologically important level of $1,000 and the high as the all-time highs. Fibonacci retracements study observation is only as good as the price action after the high point. So after the highs were clearly made at $1,900, I start to look for some “fibonacci magic”. True enough, the 23.6% and 38.2% levels played a part in recent price action. And, if you allow me – a chartist who practices a lot of give and take, I will use the $1,700 level as “proxy” for the 23.6% level (actual: $1,690). The 38.2% level comes in at $1,550 – which I have already established as a strong support zone. So with this 38.2% retracement level lending support to the case of gold holding above a crucial support zone, I will be strongly bearish if gold were to break below this level; but, wait a minute – will that not be the bottom of the parallel channel – $1,500 – that I have drawn? This is the dilemma I will face when gold does get to that region. I prefer to take things one at a time. So, until that happens, keep in mind: I am somewhat bullish in the short-term, and downright bearish further in time.

All analyses, recommendations, discussions and other information herein are published for general information. Readers should not rely solely on the information published on this blog and should seek independent financial advice prior to making any investment decision. The publisher accepts no liability for any loss whatsoever arising from any use of the information published herein.

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