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Is Gold Still Golden?

10/28/08 08:59:00 AM
by James Kupfer

Gold appears to be in a prime spot for a reversal.

Security:   XGLD
Position:   Buy

Gold has taken a mighty tumble over the last few months, falling from a high of more than $1,000 an ounce to around $735. Now, a convergence of Fibonacci support zones and a significant new support zone at the current price level indicate that this might be a prime time to buy gold for at least a significant bounce.

On the two weekly gold charts seen in Figures 1 and 2, I have drawn significant Fibonacci retracement levels. There is such a clutter of Fibonacci levels that the charts are included primarily just to show where the levels are drawn to and from.

Circles in blue denote the oldest Fibonacci level, starting with the start of the bull market in gold from February 2001 to the recent top in March 2008. The 38.2% retracement level is at $732.42. Next is the retracement level formed between the June 2007 low and March 2008 top, which is shown at the start with a red circle. The 61.8% retracement level for that move is $727.94. See Figure 1.

FIGURE 1: XGLD, WEEKLY. Circles in blue denote the oldest Fibonacci level, starting with the beginning of the bull market in gold from February 2001 to the recent top in March 2008.
Graphic provided by: Wealth-lab.
Moving to the closer view (Figure 2), you can see the light green Fibonacci retracement level calculated between the March 2008 top and April 2008 bottom. In this case, 161.8% of that move leads to a price target of $731. Finally, 123.6% of the move from July to August suggests a price target of $721.46. As mentioned previously and shown as a brown line on the charts is the May 2006 top at $730. As a previous level of significant resistance, it now turns into a support line.

FIGURE 2: XGLD, WEEKLY. The light green retracement level is calculated between March 2008 top and April 2008 bottom.
Graphic provided by: Wealth-lab.
In summary, four different Fibonacci retracement levels and an old support point all indicate that gold is currently at a level of significant support. Four of the five support prices are within $2.50 of each other. The last and least reliable since it is of the shortest time period and a less commonly used Fibonacci number is still within $9 of the other levels. While gold can move lower, like it did last week, without breaking the support levels, prices now appear in a favorable position to buy.

James Kupfer

Mr. Kupfer is a market professional and amateur stock market commentator. Disclosure: It is likely that Mr. Kupfer has or will enter a position in any security he writes about.

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Date: 10/29/08Rank: 3Comment: 

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