Friday, June 14, 2013

Gold is approaching a key inflection point

I last wrote about gold a month ago. Then I discussed how gold appeared to be following "the script," undergoing fairly typical price action following a severe sell-off. I concluded, "The price of gold should hold above the prior low level of approximately 1350 for the chart to remain constructive. It should build a base within this 1350-1400 range before looking to resume its ascent. However, if gold breaches the 1350 level and hits new lows, all bets are off as the next level off support appears to be around 1200."

Referring to the daily chart below, gold has indeed held above 1350 and has more or less been basing between 1350-1400 since mid-May.


More importantly, as shown in the chart above, gold is creating a triangle formation with its apex coming fairly soon. It's not quite a descending triangle since the triangle's lower line is not horizontal, thus forming a right triangle, but rather is rising even if just moderately. 

A breakout of this triangle should dictate price direction for the near future, but which way will gold break, up or down? Good question. Triangles are most often regarded as continuation patterns, meaning their eventual breakouts typically confirm the existing trend, and in this case one could argue gold's trend is down (pending on your time frame: short-term is down, but longer-term is still up).

That said I wanted to point out what appears to be a developing bullish divergence. Gold's price has been making higher lows since its low of about 1325 (intra-day) in mid-April, bottoming at around 1360 last month and currently looking to hold at the 1375 level. However, in looking at those lows, one can also just make a rough horizontal line that cuts across the 1365-1375 range since that third week in April. So you have a rough straight-across price line depicting lows, and yet note the RSI and MACD have been clearly rising in that time, setting up what can be considered a bullish divergence. I realize I've done a tad bit of massaging in this exercise, but I don't think it's excessive and very often in technical analysis perfection becomes the enemy of good.

As is always the case, price will ultimately shape my opinion. If the eventual triangle breakout is up, and meaningfully so, that would be bullish near-term. And vice versa for a breakout down, it would be bearish near-term. Stay tuned.

1 comment:

  1. Normally I come in here with my money til payday jokes, my descriptions and blah blah blah - I don't really have any of that this time. I just like this outfit and I'm going to leave it at that.