Gold Market Update

By: Clive Maund | Sun, Jan 8, 2006
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Gold had a roller-coaster week, rising strongly early in the week to challenge its early December highs, and then scared a lot of traders on Thursday by looking like it was double-topping with those highs, before a really robust rally on Friday set the stage for a probable break to higher levels next week. That's the latest update in a nutshell - what follows is detail.

It is rather a long time since the last update - too long it has to be said, and in the intervening period gold has completed its overreaction to support in the vicinity of its 50-day moving average, from which it has rallied, as expected. This was a strong rally which brought the price back up to the December highs quickly, a critical juncture because of the danger of a double-top forming. For this reason the latest Gold Market update has been held back a couple of days in order to see how gold would behave on reaching this key level. A striking development on this latest rally has been the remarkable strength shown by the larger gold stocks. This, just by itself, points to continued strength in gold.

On Thursday gold reacted back sharply, and many traders understandably thought "Here we go again - another double-top". In a sense the double-top is a self-fulfilling prophecy, because many traders take profits when the price rises to an earlier high - because of the danger of a double-top forming, and their selling ensures that one occurs. The reaction in silver was much more pronounced on Thursday, with traders witnessing a drop of nerve-wracking proportions. By Thursday's close things were looking grim short-term for both metals. Thus it was that Friday was set up to be an important day. The Gold and Silver Market updates were postponed, to see who would have possession of the ball at Friday's close - the bulls or the bears.

As is blatantly obvious on the 6-month chart, the bulls were in control by Friday's close, with gold putting in a sparkling performance - not for nothing were those large gold stocks powering ahead. Silver also staged a remarkable turnaround, confirming the strength in gold. Thus, although there is no argument about this market being overbought, for it is obvious that it is by the large gap between the gold price and its 200-day moving average, it now looks set to continue higher in the near-term. There is room for further advance, despite the price being very close to the intraday high at the early December peak, for as we can see at the top and bottom of the chart, the RSI and MACD indicators are not as overbought as they were back then.

On the 5-year chart we can see that if gold does break higher here it will mean a break above the return line of the long-term channel shown, that will lead to acceleration of the uptrend.

Conclusion: although gold has still not broken above its December intraday highs, and thus there is still the possibility of it double-topping with those highs, the action last week, especially on Friday, and the recent action in gold stocks, especially large-cap stocks, indicates a high probability that gold will break significantly higher next week.


Clive Maund

Author: Clive Maund

Clive Maund,

The above represents the opinion and analysis of Mr. Maund, based on data available to him, at the time of writing. Mr. Maunds opinions are his own, and are not a recommendation or an offer to buy or sell securities. No responsibility can be accepted for losses that may result as a consequence of trading on the basis of this analysis.

Mr. Maund is an independent analyst who receives no compensation of any kind from any groups, individuals or corporations mentioned in his reports. As trading and investing in any financial markets may involve serious risk of loss, Mr. Maund recommends that you consult with a qualified investment advisor, one licensed by appropriate regulatory agencies in your legal jurisdiction and do your own due diligence and research when making any kind of a transaction with financial ramifications.

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