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Gold Reaches Inflection Point!

  • Written by Syndicated Publisher 300 Comments300 Comments Comments
    April 28, 2012

    In January gold appeared to have completed a correction when it broke above the declining tops line of a fairly steep correction, but the pullback after the breakout was far more trying than we had expected.

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    (Excerpt from the April 27, 2012 blog for Decision Point subscribers.)

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    On the weekly chart below we can see that the pullback has gone all the way down to a long-term rising trend line, pushing it as much as possible without causing serious technical damage. The weekly PMO is falling, a bearish condition, and we need persistently positive price movement to turn the PMO back up. A positive aspect is that the 17-EMA has remained above the 43-EMA, meaning that a long-term buy signal is still in effect.

    Screen shot 2012-04-27 at 11.32.00 AM

    The daily line chart below shows that the 20-EMA is below the 50-EMA, which has us in a market posture of neutral. In the very short-term it looks as if price may be in the process of turning up — it has broken above a short-term declining tops line — and the PMO has moved up through its EMA.

    Screen shot 2012-04-27 at 11.45.13 AM

    Another positive sign is the low level of assets and cumulative cash flow in the Rydex Precious Metals fund. Assets have been beaten down to a level that shows a complete lack of enthusiasm for gold stocks. Based upon price performance, this is completely appropriate, but deeply bearish sentiment levels should have us looking for a price bottom.

    Screen shot 2012-04-27 at 12.23.48 PM

    Conclusion: With prices seeming to curl up within a long-term notch formed by important trend lines (weekly chart), apparent short-term bottom formation, and depressed sentiment, conditions look favorable for another up leg in gold prices. However, if the long-term support is decisively broken, we would have to assume that the current correction will be extended for quite some time.

    Images: Flickr (licence attribution)

    About The Author

    Carl SwenlinCarl Swenlin is a self-taught technical analyst, who has been involved in market analysis since 1981. A pioneer in the creation of online technical resources, he is president and founder of DecisionPoint.com, a premier technical analysis website specializing in stock market indicators, charting, and focused research reports. Mr. Swenlin is a Member of the Market Technicians Association.

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