A Look at Gold Prices – Two Views

Sep 23, 2008: 11:56 AM CST

Gold prices have made record movements recently, and has defied classic technical analysis, so let’s take a quick look at the current structure and listen to an analysis that projects possible gold prices out six months.

First, the Daily Chart that I refer to as “mystifying” technical analysis structure:

Price broke through the 200 day SMA in early August, a classic bearish signal which indeed preceded the new downtrend confirmation in the commodity.  Price then formed a classic retracement in a bear flag-style formation to the declining 20 period EMA (with the structure being in the ‘most bearish orientation possible).

Throw in a couple of shooting star (bearish) candles at resistance (which also happened to correspond with the 38.2% Fibonacci retracement of the July to August price swing) and you had a high-probability short-sell trade set-up which fell just shy of its bearish price target objective (a measured move down of the prior swing).

A bullish divergence formed as price made new lows close to its price target before reversing – gently at first – and then with increasing ferociousness to the upside with the economic uncertainty of last week.

What “mystified” or defied the classic technical structure?  It wasn’t that price failed to meet bearish price objectives – it was that price skyrocketed through all three daily moving averages and all three Fibonacci retracement price zones (taken from the July highs to the September lows – the 61.8% ‘final’ retracement is at $887.00).

Folks, this is an extremely rare occurrence where price shatters so much potential resistance in such a short period of time – it underscored just how panicked investors and the ‘big players’ were last week – the price movement was the evidence of genuine fear in the economic prospects going forward (amongst many other factors).

Next, the Weekly Chart with possible resistance levels:

We see the same bearish structure in the weekly chart.  Price formed its high in early 2008 before falling quite quickly to find support, form a consolidation zone, break out, fail to reach new price highs, and then afll precipitously to make new lows on the year and confirm a weekly downtrend (lower lows and lower highs).

In terms of technical analysis structure (does it still apply?), price is above the 20 and 50 week EMAs yet beneath a declining trendline whih terminates at $930 or $965 depending on how you draw it (using candle shadow highs or closing highs – I drew both versions).

It goes without saying that a break above these levels, and especially above $1,000 per ounce (which would put us above the recent significant swing high) would redefine the structure into a majorly bullish development and potential confirmation of a new up trend.  We’re not there yet.

The moving averages now become potential support about the $850 to $870 level so watch that level closely if we do get a pullback (retracement) which is increasingly likely.

Adam Hewison of the Market Club released a video today that goes beyond the analysis above (I tend to focus on the next likely immediately price swing) and projects price movement using cycle and trend analysis (as well as the Market Club “trade triangle” technology software) to February/March of 2009 – he has quite an interesting take you should definitely check out, along with the Market Club service itself which is benefitting many traders and investors.

Adam’s video is aptly titled “Where is Gold Headed in the Next Six Months” and includes a bit of colorful commentary on the current economic ‘crisis’ underway.

Hewison opens, “I believe the only help the government gave us last week was pushing gold prices higher. During last week’s massive bailout and intervention in the credit markets one of the few markets to close higher for the week was gold. This tells you a tremendous amount about how traders are thinking about the future.”

There’s so much going on – watch these developments closely.


3 Responses to “A Look at Gold Prices – Two Views”

  1. Rene Says:

    There is a bullish divergence on Wilders %R (7) on the weekly chart between the to last lows (76,61 & 72,51). The indicator makes af higher low there

  2. Richard Says:

    The chart shows gold has massively broken out.

    Today’s, that is September 24, 2008, sharp rise In the Ted Spread suggests a Liquidity Meltdown and Stock Market Crash is imminent.

    Confirmation comes from the pleas of Bernake before Congress for authority to sell Treasuries and swap the fresh debt out for all kinds of debt wordwide.

    Yes, the Fed chief Bernanke is pleading for the US Congress to become the lender of last resort with himself as World Banker. The Fed will become the “bank of banks”, and clearinghouse and settlement agency for derivatives, with the aim of providing financial stability worldwide.

    And tonight President Bush is going on TV to convince the people of The Need as well as to get Congress to “come along”.

    In as much as the risk of loss of investment principle looms large, for protection and preservation of capital, I recommend diversification of investment in gold in four locations immediately: the gold ETF, GLD, directly through streetTRACKS Gold Trust, and not in a brokerage account; two BullionVault, three GoldMoney; and four a limited number of gold coins.

    Best Regards to you and all

  3. TheFinancialNinja Says: