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Is Gold Losing Its Shine?

02/02/12 09:03:15 AM
by James Kupfer

After a strong start for gold in 2012, the precious metal is facing a convergence of Fibonacci levels that could cause a pause in its upward move.

Security:   XGLD
Position:   Hold

Gold has been on a wild up since the start of 2012. On December 29, 2011, gold hit an intraday low of 1523. As of the close on January 27, 2012, a short month later, gold closed at 1740. That is an increase of roughly 14%. At this point, gold has approached a convergence of significant Fibonacci levels that may provide an opportunity for gold to temporarily retrace its current move.

FIGURE 1: XGLD, DAILY. Gold is at the 78.6% retracement level between the intermediate-term high in November and the December 2011 lows.
Graphic provided by: Wealth-Lab.
Figure 1 depicts a Fibonacci fan drawn between the September 2011 high and December's low. Note how the 50% level perfectly picks the multiple tops in November and December. In January 2012, it almost again acted as resistance, but the market drove strongly up through it.

FIGURE 2: XGLD, DAILY. Taking a longer view, gold is bumping up against a major resistance Fibonacci level, as can be seen here. The levels indicated have proven significant in the past.
Graphic provided by: Wealth-Lab.
Given the obvious underlying strength in the price of gold, a retracement, if it occurs, will likely just be a temporary speed bump before higher prices are seen (Figure 2). This would allow gold to burn off the deeply overbought conditions and set the stage for higher prices that currently appear likely for the future. See Figure 3.

FIGURE 3: XGLD, DAILY. Gold is right at resistance of the Fibonacci fan.
Graphic provided by: Wealth-Lab.

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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