Gold Takes Unexpected Swing

Jul 24, 2008: 9:27 AM CST

Gold prices corrected sharply this week, breaking an upward swing and ‘breakout trade’ pathway, falling just shy of its estimated $1,000 target from the recent triangle breakout pattern.

Gold prices (per ounce) daily:

There are certainly a couple of ways to draw this triangle (is it ascending?  does the trendline start at the March $1,000 high? etc), but the fact is that price did violate the upper boundary and was surging on its way to a fulfilled ‘break-out trade’ mode.  Recent stock market strength among other factors contributed to this recent – somewhat unexpectedly ‘violent’ – downswing.

Gold prices did form a ‘flat divergence’ with the most recent upswing, meaning that this development was not absolutely a surprise.  Flat divergences occur when price makes a clearer higher swing high, yet the momentum oscillator makes an almost identical swing peak (fails to confirm the higher high).  These divergence patterns are not as strong as true negative divergences, but they are warning flags indeed.

The semi-shooting star pattern (candle) at the peak didn’t add to the bullish camp’s argument.

This is a lesson that we need to constantly follow price action for continued signs of strength or of emerging signs of weakness, and not let our overarching bias, trade position, or analysis blind us to up-to-the-minute observations and occurrences in price behaviors.

Right now, the structure seems to favor support about the $910 to $920 area – $910 corresponds with the prior break-out zone (which has already been tested, but subsequent tests may be more likely to fail) and $920 corresponds with the 50 day EMA ($923.43 to be exact).  A break beneath $910 per ounce would set-up a ‘magnet trade’ to the $880 – $890 per share level.

Price faces a critical juncture in the next few days which we need to watch very closely.

3 Comments

3 Responses to “Gold Takes Unexpected Swing”

  1. David Says:

    What was unexpected about it 🙂 Sadly i got stopped out of my GLD short from 97 bucks . learned loads about stops on longer term positions … keep em break even for a bit.

  2. Ron Des Laurier Says:

    Long time indice FOREX FUTURES etf trader with hopefully always a open mind with discipline. lol

    Great content on your blog ,very pleasing to the eye also. congratz.. You IMO are light years in front of some
    that have been around much longer. cheers R.D.

    IF you were to start a new blog soon ..would you use this
    format or typepad ,others?? TIA

  3. Richard Says:

    Corey, this is a very timely chart; just one day after you posted it; gold stabilized as the yen carry trade unwound as the chart of the EUR/JPY, FXE:FXY, fell lower to 1.690.

    The neoliberal Milton Friedman floating currency regime and its policies has met its Waterloo suffering defeat at the hands of gold investors as is seen in the currency harvest, DBV, falling 1% and gold, GLD, rising 0.8%.

    Not only was there an extinguishment of stock wealth today, there was an extinguishment of currency wealth: interest rate differential traders suffered a set back.

    The Great Unwinding Of Investments commenced today — Great Depression 2 is on the way.

    I expect a severe decline in the value of the US Dollar and stocks; that is why I recommend that one invest in gold NOW.

    Please keep posting the gold charts