Although Gold seems to be on an endless up trend we are starting to see some signs of weakness which seem to hint at a potential top coming very soon. Gold's last high was around $1425 on both around November 8th and December 8th before it pulled back down. Gold seems poised to test this level again; most likely by the end of this week. The question is, will Gold manage to close strongly higher or pull back for the 3rd time? Although Gold is still trending up, the trend is certainly slowing down. We are now starting to observe a potential ascending triangle pattern, which would be confirmed if Gold pullbacks again around $1425 and falls below first the 50 day MA currently around $1372. If Gold then falls below $1340 and $1325, the pattern and beginning of a down trend will be confirmed. Something that gives strenght to this argument and possibility is the fact that we can observer a negative divergence between Gold's trend and the MACD's trend. Gold is currently still trending up but the MACD has been trending down against the trend since around October 18th. The Stochastic has also been trending down during the same period. Keep in mind that Gold has been trending strongly above its 50 day MA since the month of July where it briefly crossed below it before reversing back strongly back above it. Is Gold about to crash and burn? Not necessarily, it is still very early to call a high, even if Gold does indeed break the up trend. Such a statement could only be confirmed if Gold were to break other major support levels at much lower levels around the 200 day MA. If Gold were to break down, this may not mean that it will start a long term down trend. The first critical support level it could reach is around the 200 day MA around $1250. If Gold bounces back up at $1250, this may actually be a good entry point and perhaps a resumption of the up trend.
The most important chart to look at is the weekly long term pattern of Gold. By looking at this chart we can see that Gold has not broken its 50 day MA since the end of 2008 and has been trending above the 200 day MA for now over 3 years. A break below the 50 day MA could easily send Gold back to $1000. If $1000 and the 200 day MA is broken, then we would be in a major long term down trend. Until $1000 is broken, Gold's long term trend will remain up.
Something however is clear in terms of daily chart is that the up trend is weakening and something leads me to believe that Gold's down trend will likely coincide with the beginning of the new year in early January. The trend may not necessarily play out as I expect it to, but I do believe we are getting very close to a top with Gold. I would definitely not take any position with Gold right now as we at dangerous levels whether you choose to go long or short. The best decision to take right now is to WAIT and see if the pattern I expect to occur happens; we will have a better idea then of what to do. There might be a short term opportunity to short gold which could potentially turn into a long term opportunity. However, keep in mind than when anything starts trending down, a lot volatility comes with it. What if Gold breaks above $1425? If this occurs I don't necessarily believe that this potential pattern I'm observing will be null, but only that it might take a bit more time before Gold breaks down. Something that could likely occur in that event would be a tightening of the trend like it is already in right now. After this, Gold must break up or down. Basically we are near a very critical point in terms of the future direction of Gold.
Yoel,
ReplyDeleteWelcome back! Happy New Year!!
What a perfect timing. I was trying to research my options on gold investment and here I see, a blog from you.
Before reading your blog, I was under the belief that gold prices are here to stay. As more and more countries have piled up/printed a lot of paper currency, the feds of these countries would be always looking to increase their gold reserves. But your analysis seems to be hinting a top of gold prices in the short term.
Are you still optimistic for a long term horizon, say 2-5 years?
Thanks,
As of right now predicting what will happen in 2-5 years is very hard to predict. If we look at the weekly chart by itself, I would tell you that the long term up trend still looks strong and steady, and I will remain bullish towards it as long as Gold maintains its price above the 50 day MA. The short term trend obviously hints at a possible top, which could either be a short term or long term top; it's too early to say. Basically the pullback I expect to see occur, can either end up being a good opportunity for a long term entry or a short term short which could become long term. The day I'll see Gold cross back down below the weekly 50 day MA is most likely when I will possibly call a long term top for Gold and possibly go short. Based on the current long term trend, I would likely want to get into gold if there is a short term pull back which is followed by a small rebound. As of right now, it is too early to take any decision.
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