A Long Term View On …. Gold
- Posted by Greg Harmon
- on December 19th, 2012
The shiny yellow rock is like the Sybil of the investment world. It has at least seven personalities. Some see it as an inflation hedge. Others a currency. Some see it as a fear gauge and still others see it as a luxury retail item. So which is it? All of these and then some. And that is what can make it interesting as a trading vehicle. Let’s see what the charts are saying about this nugget. The daily chart is making news so let’s start there. The chart below shows a pullback to the 200 day Simple Moving Average (SMA) for the first time since late August. This comes with the shorter 20 and 50
day SMA’s rolling over and price on the way back from a double top at 1800. The falling and bearish Relative Strength Index (RSI) and negative Moving Average Convergence Divergence indicator (MACD) both support a continued move lower. A lower low from a lower high signals at least caution but watch for a break of that 200 day SMA to open it to lower support at 1640 and 1620 followed by 1600. Moving out to the weekly view shows the 50 week SMA splitting a neutral channel between 1550 and 1800. It also has a RSI that is pointing lower as it is making a new lower low and heading towards bearish territory and a negative MACD supporting that case. It is still early
in the week, but watch the volume as it has been declining on this pull back. Should it continue then it raises thoughts of a slowing and reversal. A move below 1660 on this view triggers a target of 1520, on the break of the descending triangle. A bias lower on this timeframe but not as gruesome as the daily. Stepping back further to the monthly chart shows the long trend higher from 2001, holding above the 100% Fibonacci Fan after being set back at a test of the next Fan line higher. This is very bullish. The shorter view from 2008 shows the price breaking below the lower Median
Line of the Andrew’s Pitchfork and nearing the Hagopian Trigger Line (a short signal). This is getting complicated. If it falls under the trigger at 1660 this month, then there is support at 1550 and then nothing until 1500 and 1420. from there it can get ugly. A 50% retracement of the 12 year up movement for example is at 1089 but lets not get ahead of ourselves. In summary, the 12 year uptrend in Gold looks to be in jeopardy for the first time. The key levels to watch that could lead to a cascade lower are 1640-1660 followed by 1550.
This is the seventh in a series of A Long Term View On …. articles that will appear over the next few weeks.
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Gregory W. Harmon CMT, CFA, has traded in the Securities markets since 1986. He has held senior positions including Head of Global Trading, Head of Product Development, Head of Strategy and Director of Equity. (More)
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