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CHART ANALYSIS


Long Term Gold Hitting Resistance

01/06/04 10:20:28 AM
by Gary Grosschadl

Last month gold finally closed above $400, something it hasn't done since 1996.

Security:   $GOLD
Position:   Hold

The monthly chart for gold shows the dramatic run from double bottom lows near $255 in 1999 and 2001. Placing a pitchork (or Andrews Line) on the chart illustrates this dramatic move and aptly tells the story. A classic pitchfork move is a run to the median line. A very bullish move is a further run towards the upper line and this certainly seems to be the case here, but not before some wild gyrations at the $350 mark. Should the top line be touched, then a spike up to $440 or close to it could be in the cards. However looking back at previous tops at $418 and $425, a case can be made for the gold price to possibly balk in this resistance zone.

Long term gold chart shows previous resistance.
Graphic provided by: Stockcharts.com.
 
Several indicators are also pointing at a possible topping out in the near future. The DMI or directional movement indicator on the top of the chart shows the ADX component clearly in overheated mode. The ADX shows trend strength at record levels at 50.3. A downturn from these high levels will coincide with the ending of the current trend, meaning a downleg will develope.

The MACD (moving average convergence/divergence) is still in a bullish mode but note that it also is in record high territory. Likewise the RSI (relative strength index) and the stochastics are in overbought territory.

This chart is still bullish but with the price hitting this previous resistance zone, I can readily imagine the big money players dancing close to the exits. Whether the exit comes here or nearer to $440, dancing close to the exits seems to be a prudent plan.



Gary Grosschadl

Independent Canadian equities trader and technical analyst based in Peterborough
Ontario, Canada.

Website: www.whatsonsale.ca/financial.html
E-mail address: gwg7@sympatico.ca

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