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TECHNICAL ANALYSIS

Looking At Gold

11/11/05 09:35:19 AM
by Koos van der Merwe

Last week, analyst after analyst interviewed on Canadian television was bullish on gold for the long term. Why, then, am I long-term bearish?

Security:   GLDL
Position:   Accumulate

Figure 1 is a monthly chart of the London gold price from 1981. I have taken the base support line, D-E, and drawn parallel lines from each pivot point, F, G, A , and X. Note the following:

a. Both parallels F and G have acted as support lines when gold broke through them in the bull run, E to C, and the corrected top found support before the next rise. However, the gold price should have found resistance on the A-B line and it did so at C, but it broke above it and also broke above the X-Y parallel. As shown, it appears to be looking for support on the X-Y line.
b. What is disturbing is the relative strength index (RSI), which has given a divergence sell signal -- that is, where the gold price is making higher highs, but the indicator is making lower highs.

The question is whether the support line X-Y will hold, or will gold break below it and also break below the A-B support line and find support at the G parallel. A cyclical forecast from the lows of D and E is suggesting a downtrend for gold until March 2013.



FIGURE 1: GOLD, MONTHLY. Both parallels F and G have acted as support lines when gold broke through them in the bull run.
Graphic provided by: AdvancedGET.
 
What does a weekly chart tell us (Figure 2)? It shows that gold did not find the trendline X-Y a resistance level, but in fact corrected before it hit the X-Y resistance. What is disturbing is the historical effectiveness of the divergence on the RSI. This is suggesting that the trend could be down, although gold rising to test the resistance line X-Y at 475.50 should not be ruled out.

I also tried to show an Elliott wave count in FUCHSIA. The count is suggesting that gold could have completed a wave 3 up, and is now moving into a wave 4 down, possibly finding support on the G-H support line at the $390 to $400 level before continuing higher.




FIGURE 2: GOLD, WEEKLY. This shows that gold did not find the trendline X-Y to be a resistance level, but in fact corrected before it hit it.
Graphic provided by: AdvancedGET.
 
Looking at a daily chart (Figure 3), you can see how the gold price has been rising in a series of consolidation triangles. The most recent one is suggesting a target of $494. (Move into the triangle from $374 to $454 = $80 added to $414 = $494.) The gold price rose as high as $475.84 before falling to test the $454 pivot point. For this chart, I have used a stochastic indicator, 8-10-5, which is still negative, suggesting further downside before a move up.

To conclude, although the monthly chart has broken above a major resistance level, its indicator is suggesting that the major trend is down. However, a divergence could once again occur with the gold price making new highs, while the RSI shows lower highs.

The weekly chart, on the hand, is suggesting that the medium-term trend is down, possibly to the $390 to $400 level, a sizable drop from the current price. Finally, the daily chart also suggests weakness, but not to the levels suggested by Figure 2. There is support at $454 and at $433, should the $454 support be breached.




FIGURE 3: GOLD, DAILY. You can see how gold has been rising in a series of consolidation triangles.
Graphic provided by: AdvancedGET.
 


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.

Address: 3256 West 24th Ave
Vancouver, BC
Phone # for sales: 6042634214
E-mail address: petroosp@gmail.com

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Comments

Date: 11/12/05Rank: 3Comment: 
Date: 11/14/05Rank: 5Comment: 
Date: 11/17/05Rank: 4Comment: 
Date: 11/22/05Rank: 5Comment: 
Date: 12/04/05Rank: Comment: WHO CAN WE KNOW WHEN WE CAME TO SHORT POSITION? WHO CAN WE BELIEVE TO CU TOUR LONG POSITION .SOME ONE TELL TO ME GOLD WILL TOUCH AT425/440/475 ?ITS POSSIBLE?CAN WE C WHICH ANGLE CAME BEFORE BULLISH /BEARSH? CAN U HELP ME?
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