As Gold prices fall and fall, the question becomes “Where is the bottom?” For consumers and alike, none of us want the bottom to be anywhere in sight. Gold falling usually pertains to the strengthening in the US Dollar and the weakening of oil prices, both of which help the common consumer. Asking “Where is the bottom?” is a very wise and fair question, and from a technical analysis viewpoint (i.e. using charts), the bottom may be here. On the bright side of things, Gold may also be approaching ‘bust’ territory. The $GOLD (Continuous Contracts (EOD)) chart represents this ‘bottom’ or ‘bust’ set-up very nicely.
Annotated Chart: $GOLD (Continuous Contracts (EOD) Chart
The first key aspect of the chart to notice is the uptrend trendline (solid green line) that began in late 2007. As can be seen, once in May at $846 and once in mid June at $859, the price of Gold bounced from these regions. These “bounces” created the uptrend in Gold that we have all been witnessing since the May time frame. The bullish event (for us as consumers), which has recently occurred, is the failing of this trendline (yellow circle). The effects are evident: a rapid decline in price.
Bottom or Bust? Only time will tell now, but via the chart, it will make this journey much easier to see. First, let’s start out with a possible bottom scenario. The price is approaching a ‘support zone’ which is denoted by the two skinny dotted green lines. These are previous lows, and technical analysis 101 points to these as possible support areas where the buyers are potentially drooling for good prices. When you combine the current price in relation to the support levels, and then look at the Full STO technical indicator (highlighted by sky-blue circle), a case can be made that we may be approaching the bottom. When the Full STO is below 20, it is technically considered ‘oversold’. If prices do stabilize, and begin to head up, the next thing to monitor will be the area of the tan box. As long as prices do not close above that portion of the green line, the bearish move is still intact. The portion of the green line in the tan box currently serves as a crucial resistance point.
This is where the fun begins. Let’s say that we get a couple days closes below the $846 mark. This implies that there are not a sufficient amount of people interested in purchasing Gold at that point, and therefore, the support level would be considered broken. Notice where the next blue circle is? Way down in the $790 region. When you combine the MACD (sky-blue circle) breaking through its previous support (white circle) with the current price action, it makes a very strong case that Gold may have quite a bit more way to fall before finding bottom. If we can manage to get a few closes below $846, I would look for the dollar to continue to rally and for oil to continue to retrace, which would help out the economy by leaps and bounds.
At this point in time, it is a ‘wait and see’ from a technical analysis standpoint. One thing is for sure, Gold is now in the bear’s hands, and they don’t look like they plan on giving it up without a fight. As consumers, we want to see $846 fail as a support, and on any rebound, we do not want to see the price get back above the green line inside the tan box. I will leave you with this, LETS GO BEARS!!!!
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