Gold Market Update
Originally published September 3rd, 2007.
GOLD UPSIDE BREAKOUT ALERT! Gold is now in position to break above last year's highs and embark on a major uptrend. On the 2-year chart we can see how, just by virtue of tracking sideways in a narrow range in recent weeks, it is getting clear of the resistance in the vicinity of the Distribution Dome, which of course signals that the distribution phase in the dome pattern is over - those who wanted to sell have done so. While there remains a residual danger of a Head-and-Shoulders top completing as shown on the chart, this risk is now regarded as minimal for reasons that will soon become clear. Gold has performed much better than silver in recent weeks - silver succumbed to the resistance of its dome pattern and crashed important support, whereas gold has remained indefatigable and refused to break down. It is thus most interesting and paradoxical that silver's COT structure has improved drastically in recent weeks, so that while gold's price picture is currently more positive than silver, silver's COT structure is now exceptionally bullish - considerably more bullish than gold's. From this it is reasonable to conclude that silver's plunge last month was not the start of a major breakdown, but rather a final capitulative flushout. What this means is that both metals are now in position for a powerful rally, which is likely to start sooner rather than later.
When we consider the 2-year gold chart further we can see that the price is above all of its principal moving averages, which are bunched together and rising - this is a most auspicious circumstance, particularly as the price is now getting clear of the dome, and while we must acknowledge the residual Head-and-Shoulders top danger, it is clear that gold is in position for a powerful upside breakout that should drive it clear above last year's highs to commence a major uptrend. Note the narrowing of price fluctuations in recent months, highlighted by the neutralization of the MACD indicator at the bottom of the chart - an unusual calm prevails of the kind that normally precedes the emergence of a major trend.
The general background situation vis-à-vis the broad stockmarket, inflation and interest rates and other factors having a bearing on the outlook for both gold and silver has been set out in the Silver Market update, to which readers are referred - silver got the star treatment in this round of updates on account of the rapid and extraordinary improvement in its prospects. This background situation is now strongly bullish.
In conclusion an upside breakout is believed to be fast approaching for gold and it is thus viewed as a strong buy here, although it may back and fill for a little while longer as it waits for sentiment in silver to recover sufficiently for it to overcome its resistance at and towards $12.50.