Feb 19, 2013

Gold In Multi-year Consolidation

Last six months showed mostly red bars for the precious metal. Current downtrend, however, is part of the broader triangle consolidation started September 2011 which is now slowly moving into parallel one, as seen on the chart. After formed two tops and two bottoms since Oct 2012 gold is moving like snake in a tunnel on its way down to the strong resistance of $1560. Only successful breakout above 200 day moving average ($1668) could bring some relief.

Gold To Continue Its Slide
Gold To Continue Its Slide

Speaking of gold we cannot afford not to mention the dollar. Recent weakness against the euro is not in line with the broader picture of the dollar index performance. On a comparative chart gold and dollar index show interesting historical relation. Every time the dollar index touched its parallel trend support line the gold registered peak and vice versa. Recent gold drop however does not coincide with dollar appreciation… so far.

Gold Vs Dollar index
Gold Vs Dollar index

The drop in gold since last Sept 2012 is combined with consolidation of the dollar index. The same picture was seen Jan-May 2012 when gold correction was  followed by rise in the dollar which mark the gold bottom. Probably we are in the same situation as many parallels are seen now. There is high probability, based on the previous gold correction pattern, that the bottom is still to come. As mentioned above probably $1560 could be the target level. Following the conventional logic dollar should appreciate. This assumption is supported by the technical analysis of the dollar index which is now close to the lower parallel line of the two year channel. 

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