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FLAGS AND PENNANTS


Is Gold Restarting Its Bull Run?

03/25/04 10:13:30 AM
by Ashwani Gujral

Flags are often pauses in ongoing trends. They offer a good place for traders to book profits or enter into the trends. Is gold breaking out of one such weekly flag?



Security:   N/A
Position:   N/A

Gold is always a safe haven when equity markets correct and also when the world is faced with uncertainities such as the current terrorism threat. In a previous article, I discussed a breakout in Platinum futures and predicted a breakout in both gold and silver futures as well. This seems to have occurred. Gold futures seem to have completed an intermediate downtrend on the daily chart that appeared as a bullish flag on the weekly chart. Gold has also broken out of a flag on its weekly chart and now presents an excellent entry opportunity in the long-term bull market.


Figure 1: Gold's daily chart.
Graphic provided by: eSignal.com.
 
Looking at the daily chart, Gold has broken out of a downward channel. I have calculated an initial target around 4500, as this consolidation channel can be assumed to be in the middle of an upmove.

The daily RSI has broken out of a double bottom pattern. The RSI can be analyzed for chart patterns in the same manner as price movements. A breakout of a bottoming pattern on the indicator adds to the confirmation of the breakout of the price chart. The MACD histogram shows a bullish divergence with the price. This is a very strong signal indicating that Gold futures are bottoming in the short-term.


Figure 2: Weekly chart of Gold.

On the weekly chart, gold seems to have offered yet another opportunity for traders to enter in the long-term bull market. An entry set-up that is extremely useful in any time frame is the 20-period moving average. Long trades can be entered as the price goes below then back above the 20-period moving average. The weekly chart also shows a bullish flag breakout, confirming the continuation of the uptrend. The stochastic indicator can also be used to enter a trend when it reaches the oversold level and loops back above it. The weekly RSI continues to find support at the 50 level, confirming long-term strength in the Gold market. A target of 4475 can be calculated from the flag pattern on the weekly chart as well.

With equity markets weak and the world threatened by terrorism, Gold remains one of the best long-term trades in the current investment climate.




Ashwani Gujral

He is founder of AGIP Securities Pvt. Ltd. which offers money management services, live chat rooms (during market hours) and independent technical analysis consultancy. The company has a big media presence from the likes of CNBC, NDTV Profit, and ZEE Business.

Title: Chief mkt strategist
Company: AGIP Securities
India
Phone # for sales: 9871066337
Website: www.ashwanigujral.com
E-mail address: contact@ashwanigujral.com

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