A Look at the Daily and Intraday Friday Fall in Gold Prices

Dec 4, 2009: 1:06 PM CST

File this under “In case you missed it” – gold prices fell $40 intraday following Friday’s better than expected “Jobs Report” while the S&P 500 rallied sharply… and then sold off.  Let’s take a look at gold’s 60min and daily chart to step inside this recent action, and note the divergences that preceded it.

Mini-Gold (@YM) 60-min chart:

Price was in a grossly overextended condition and risk was high for some sort of pullback/retracement with each new tick higher in gold prices.  This underlies the risk in ‘chasing’ overextended markets that are being hyped up on news.

This is not to say that gold can’t keep going higher, but that the best buy-ins are after pullbacks, which can occur suddenly, as opposed to overextended/overbought conditions.  Pullbacks can occur to wipe out profits or bring losses quickly.

Still, a negative momentum divergence – almost a “Three Push” Pattern – preceded the recent price high above $1,225 per ounce in the precious metal – often known as a barometer of inflation or a ‘safe haven’ at times.

Price began to break down through the 20 (green) and 50 (blue) period EMAs mid-day yesterday (often an early ‘watch out’ sign) and then fell to a new price swing low overnight last night to the $1,202 level, forming also a new momentum low.

Price stayed in a range for the rest of the night and then – upon release of the ‘better than expected’ Jobs report, plunged sharply to retest the $1,170 level within a few hours of the release.

Here is how the Daily Chart of gold looks now after the pullback:

Price is still in a strong uptrend, but remember that price in an uptrend tends to swing away from, and then pull back towards the 20 period EMA – that’s all that has happened so far and it’s nothing to be worried about – as long as price remains above the 20 EMA or roughly the $1,150 area.

There was a lengthy negative momentum divergence beginning in November on the 3/10 Oscillator, and I’ve drawn in a fractal (small) five-wave “Elliott” count on the move up from the November ‘lows.’

Key point is to keep watching the $1,150 area, and any break of that area could lead to a deeper pullback to test the 50 EMA at the $1,100 area.  Gold’s uptrend – at least on the daily frame – would be called into question if price fell much below under $1,100 – note the prior potential price support from the October swing high at the $1,075 level.

For more in-depth analysis on Gold, along with Crude Oil, Ten-Year Notes, the S&P 500, and the Dollar Index, become a member of our Weekly Inter-market Reports service.

Corey Rosenbloom, CMT

Follow Corey on Twitter:  http://twitter.com/afraidtotrade

5 Comments

5 Responses to “A Look at the Daily and Intraday Friday Fall in Gold Prices”

  1. Ken Says:

    Some unreal price action today, from UUP to GLD to the general markets – what's your thoughts on this Corey? Looks like UUP is de-coupling from its inverse from the equities market. Interesting stuff.

  2. the99th Says:

    Funny story, the other night I was watching gold print 1225 and then 1226 and I thought it might be good to short a bit with a stop at 1227. But then I was like “are you crazy, shorting gold?” and I backed off. There's got to be a lesson in that.

  3. Min Says:

    yea those were exactly my thoughts the99th! i actually shorted it at 1225 and when my friend found out he said “Are you nuts shorting gold?! everyone is bullish – it could easily go to 2500”. I took $200 profits at 1205.
    by the way, corey what are your thoughts on this analysis. as a bear i find 11300 within 10 trading days unlikely but I am not sure if your analysis would support the following http://theinflationist.com/technical-analysis/u

    have you looked at 1937 vs the current?

  4. steoli Says:

    I did short 120 GLD calls and bought 120 Puts… i did a very nice profit… This chart is a great example… The divergences end in a perfect head and shoulders… A dream trade…

  5. steoli Says:

    I did short 120 GLD calls and bought 120 Puts… i did a very nice profit… This chart is a great example… The divergences end in a perfect head and shoulders… A dream trade…