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A Target For Gold?

12/01/04 03:51:42 PM
by Koos van der Merwe

Gold has become a hedge against the drop in the US dollar. But how high will gold rise -- how far will the dollar fall?

Security:   GLDL
Position:   Accumulate

Figure 1 is a weekly chart of the London gold price from April 1980. The chart shows how gold drifted down from $699.03 to a low of $254.81 before starting to recover. It moved between two trendlines, forming two cup and handle formations, the first of which was not satisfied by a move above the handle at X. With the second cup however, the handle was broken at Y. This now suggests that gold could reach a high of $600.85. (427.83 - 254.81 = 173.02 + 427.83 = 600.85). But how long?

The other positive for gold is that the price broke above the upper trendline with not much resistance. Should gold fall, it should now use this trendline as a support level, consolidating in preparation for a further up move.

Figure 1: Gold with a cup and handle. Gold has become a hedge, but how high will it rise?
Graphic provided by: AdvancedGET.
Will the dollar weaken further with gold's rise? Actually, it should be the other way around -- will gold continue to rise as the dollar falls, or will gold's rise be caused by world political uncertainty? That we cannot tell, but that gold will rise to above the $600 level is on the charts and should be taken advantage of.

Koos van der Merwe

Has been a technical analyst since 1969, and has worked as a futures and options trader with First Financial Futures in Johannesburg, South Africa.

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