January 16, 2011
John: On Friday, Gold (continuous contract) openedat $1,374, climbed to a high of $1,378 and then fell to a low of$1,355. It closed at $1,359, down $13.80 (1.00%). Of course at BMRwe focus intensely on the price of the yellow metal which is also acommon element with most of the companies we write about. We haveperiodically studied this commodity and its relationships with the CDNX, the TSX Gold Index and the U.S. Dollar. Today we analyze the history of the Goldprice over the last 4 years in terms of technical analysis to look attrends, patterns and examine the direction for the next 6 months. Todo this I’ve used a monthly chart which eliminates the daily andweekly noise and presents a clear image of the “Big Golden Picture”.
Looking at the 4-year monthly chart we see that in July, 2007, a10-month flagpole began which took the price from $650 per ounce toover $1,000.
Then an 8-month corrective phase began which took the price downslightly below the $700 level during the Market Crash, almost a 100%retracement.
In November, 2008, the price recovery began with Gold moving up to $1,000 in 4 months.
Starting in February, 2009, Gold began to form a consolidation pennant which lasted for 6 months. This tended to put more order into the Goldmarket and in September, 2009, the price broke to the upside from thepennant and continued to climb until a big move came in November, 2009,and into early December, when Gold hit an all-time high of just over $1,200 per ounce. This created an overbought situation which in turn caused a retracement.
In February, 2010, we saw the start of the first 6-month cycle. Theprice bottomed at $1,050 and rose to over $1250 by June, 2010, beforeretracing to $1,150 in July.
In August, 2010, we saw the start of the second cycle with the highoccurring in December, 2010, at the $1,425 level. Then here inJanuary, the 6th month of the cycle, the price is retracing with asolid support level at $1,300 as shown on the chart.
As can be seen from the chart the trading between February, 2009, and now has formed an upsloping channel.In November and December, 2009, when the price broke above the top ofthe channel this can be considered as an “outlier” and unimportant inour analysis. I have extended the 4-year chart for another 10 monthsin order to extrapolate the upsloping channel and be able to estimatethe price in June of this year, assuming Gold willcontinue to move within the channel in a similar 6-month cycle. Thepredicted high from the extrapolation is $1,650 per ounce while thestrong support level at the bottom of the channel for January is $1,300(green dotted line).
Looking at the indicators:
I have used the RSI(2) which is suitable for extreme situations(highs and lows). The price highs usually occur at the 100% level andthe lows around the 30% level. The span between 30% and 100% can beconsidered a bullish trend and if the span is between 0% and 70% thetrend is bearish. The present RSI level is 37% and moving down towards30%.
The ADX trend indicator is very bullish with the +DI (green line) at32 and above the -DI (red line) at 17. The ADX trend strength (blackline) is strong and climbing at 50, a very bullish orientation.
Outlook: This analysis shows there’s a high probability that Gold willcontinue to trade in the upsloping channel and will not fall belowthe $1,300 support level. A realistic 6-month high appears to be$1,650 per ounce. The primary trend in Gold is very strong.
Source:
https://www.bullmarketrun.com/?p=4846Guy