Gold Market Update
After a lengthy period consolidating in a large trading range gold is now in position to break higher. It has behaved pretty much as predicted in the last update, dropping back towards the important support at $600. It was expected to fall to the $600 level, but in the event has found support a little higher in the $610 area. The reaction of the past several weeks has had several positive technical effects. The first is that, as part of the larger consolidation pattern following the May peak, it has obviously allowed gold further time to digest the large gains leading up to the May highs. The second is that it has now completely unwound the somewhat overbought condition that had existed at the start of the month, as shown by the MACD indicator at the bottom of the chart. Lastly, it has allowed time for the 50-day moving average to flatten out and turn up and for the 200-day to catch up further. This is therefore considered to be a good point to buy gold, especially as, with strong underlying support in the $600 - $610 area, traders always have the option of exiting for safety should this support fail, and later re-entering when the picture improves again.
In the last two updates the large consolidation pattern following the May highs was viewed as taking the form of a Symmetrical Triangle, and in the absence of a clear lower boundary to this pattern, the 200-day moving average may be loosely taken as serving as the lower boundary. Using this we can see that the upper and lower boundaries are rapidly converging and thus we are likely to see a breakout above the upper boundary soon. Although such a breakout could lead to the triangle morphing into a Rectangle, which would mean a continuation of the consolidation pattern in another form, the action in stocks suggests that it is more likely to mark the start of a new intermediate uptrend in gold that should lead, at least, to it challenging the May highs before probably going on to take out these highs and then leave behind the consolidation as it advances away from it.