7/1/2012 GOLD #5

Gold Future (/GC)

(Weekly)

-          The gold future has been trading in a 260 points range @ $1532.7 - $1791.1 since late 2011. The top of the range @ $1791.1 is where the future formed a double top, indicating an area of resistance. On the other hand, the gold future triple bottomed @ $1532.7 and it may form a 4^th bottom if it bounces again, signaling a consistent buying interest at this level.

-          Three scenarios can happen here:

1.          The range bottom level @ $1532.7 doesn’t hold and the gold future price breaks to the down side. The gold future should find major support @ $1478.8 because it consolidated at this level once in the previous up move. If the $1478.8 level doesn’t support the gold future either, next support should be @ $1313.2, which is last year’s low.   

2.          Gold future price bounces from the range bottom @ $1532.7 but can’t break above the downtrend line. Notice the 50 week moving average (50 SMA, grey in color) is closing up to the downtrend line, acting as another layer of resistance. If the gold future turns around at the downtrend line, that indicates buyers don’t have much faith in the gold market, selling out their long position when the future encounters some resistances. This is a signal for the bears to step in, expects the gold future pullbacks to the range bottom @ $1532.7 and breaks lower.

3.          If the gold market experiences a bull rally taking the future price up to the range top @ $1791.1 again, the gold future is quite likely to breakout. The reason behind is simple, “if the stock price doesn’t go down then it is going to go up.” If sellers try to punch the gold future price lower for 4 times and fail, this tells that buyers are showing interest and holding up the gold market; if buyers are the bigger player in this case then long is a better option, there is no reason to go against the majority.    

(Daily)

-          In the daily chart, the 50 day moving average (50 SMA, grey in color) crossed below the 200 day moving average (200 SMA, white in color), forming a bearish golden cross and signaling a continue downtrend.

-          On the upside, there are multiple overhead resistances: the resistance level @ $1631.6, the 200 day moving average (200 SMA, white in color) around $1650, and the yellow downtrend line from the weekly chart. If the gold future wants to rally back to the top of the range @ $1791.1, it may experience a hard time to do so.

-          Take a look at the future price movement starting in March 2012, the gold future is steadily trading underneath the green downtrend line, showing signs of weakness with multiple lower highs. If the gold future makes a 9^th lower high and pull back to the range bottom level @ $1532.7, watch out for a major break in either direction as the trend line and the range bottom level closing up.   

 I hope this post offers you some insight, thank you for reading and please feel free to give me some feedback.