Best Financial Markets Analysis Article Leaving aside the historic credit crisis events of last week to approach the Gold market on a purely technical basis following the breakout above $850 last week. This article therefore is an update to my existing series of analysis of the last 6 months which has been consistently bearish of Gold (articles archive) during which time Gold has witnessed a decline from $1033 in March to $740 earlier this month.

TECHNICAL ANALYSIS OF GOLD

Chart Courtesy of Stockcharts.com

TREND ANALYSIS - The powerful break above the $850 previous high is a clear trigger that signals a significant rally that initially targets the next high of $989. However despite the increase in volatility, gold's most recent action has seen gold retrace to back below $900 in recent hours with last price at $880, which suggests a correction against the powerful rally is underway targeting a retracement to $850 breakout point.

The next resistance level above $989 is the $1033 March high, which given the vicinity to $989 would probably break soon after a break of $989. However Gold resistance at $989, would target a retracement to support at the recent high of $926, with strong support in the range of $926 to $900.

Failure to break $989 - Would see gold continue to develop a sideways pattern in the range of $989 to $800.

Price Targets - The 2006 downtrend witnessed a decline of some 185 points, the subsequent rally to 1033 was up 490 points, or 264%. Gold also made an intermediate high at $850, up 308 from the low or 165% of the 2006 decline. The downtrend from 1033 to 740 represents a decline of 293 points. Therefore the two trend targets above the 1033 high are 1220 and 1516.

MACD - The MACD indicator is heavily oversold after registering a sustained bear trend of 6 months which is similar to the length of the downtrend experienced during 2006.

SEASONAL TREND - The recognized seasonal pattern for gold is for a rally from late July / early August into February. Clearly up until last weeks action Gold has been ignoring the seasonal pattern. However the recent catchup move implies that Gold is now targeting a trend inline with the seasonal pattern starting a month late, therefore this suggests a + / - one month up trend target for a gold of between late Jan to Late March 2009..

ELLIOTT WAVE THEORY - The decline from the March 2008 high clearly indicates a simple ABC wave pattern , each of which were themselves comprised of abc waves. This strongly suggests that the decline was corrective, and therefore implies a 5 wave advance to above the 1033 March high.

Gold Forecast Conclusion - The immediate action suggests an ongoing correction towards $850. Gold has experienced a major significant breakout to the upside which is targeting a volatile up trend to $989, on break of which Gold will target a new all time high of above $1200 by Feb. to March 2009.

A FAILURE to break above $989 and follow the forecast trend would imply a sideways trend in the range of $989 and $800 for probably the next 11 months i.e. until the next bullish seasonal time period approaches.

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By Nadeem Walayat
http://www.marketoracle.co.uk

Nadeem Walayat has over 20 years experience of trading, analysing and forecasting the financial markets, including one of few who both anticipated and Beat the 1987 Crash. Nadeem is the Editor of The Market Oracle, a FREE Daily Financial Markets Analysis & Forecasting online publication. We present in-depth analysis from over 150 experienced analysts on a range of views of the probable direction of the financial markets. Thus enabling our readers to arrive at an informed opinion on future market direction. http://www.marketoracle.co.uk

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any trading losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors before engaging in any trading activities.

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Comments

erick manvers
27 Sep 08, 10:48

Gold Bulls

I fail to see any relevance in using technical analysis on any of the PMs, when the "not for profit" traders are manipulating the prices, particularly gold and silver, on the COMEX futures market.

Prices are manipulated to suit technical standards, analysis only confirms this.

Many "pit men" are commenting that the West is selling paper gold, while the rest of the world is buying real gold.

Guess who the real winners will be!

There have been 5 or 6 articles in the last week, from Putin talking about a gold-backed Russian currency, and selling oil to Europe denominated in Euros (catastrophic for US hegemony), and China, advocating a basket of currencies for international pricing of commodities.

Given this dynamic, any fiat struggling as the US is doing right now, will seek to suppress its main adversary for legitimacy, - Gold.

Yes it's bullish for gold

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