Looking at gold in the short-term, we have April’s reaction low at ~$1320/oz as key support. If support is broken to the downside, we could see a test of the $1200/oz level. However, this would still mean that an important bottom could be forming as long as commercials continue to increase their net position, which is typical of their behavior in a declining market.
In terms of upside resistance, in the very short-term we have to get above $1400/oz which will give the opportunity to test $1448/oz which is the 200 week moving average (WMA). Above that we have April’s retracement high forming a second shorter-term resistance level at ~$1480/oz.
A decisive break above $1448/oz is an important level for the gold bulls, as it represents a rising long-term moving average which has been violated. The last time gold touched its 200WMA was in early 2002. Since then gold prices remained above this average until breaking below it in April 2013. On a move back above the 200WMA and the aforementioned $1480/oz resistance, the market will be poised to test important resistance at $1550/oz and $1800/oz.
OK….So in retrospect, things didn’t turn out the way we or any other gold bug wanted them to. After patiently waiting out the ‘Summer Doldrums of 2012′, gold started to rally in mid-August, approached the $1800 resistance barrier around end of September and once again failed to surmount it.
Even the ‘Golden Cross’ technical indiciation of mid-September 2012, in which the 50 Day Moving Average crossed over and above the 100 Day Moving Average, which was interpreted as potentially providing the momentum required to reach $2000 this time, has in fact turned back southwards and is ominously close to switching paths again.
That southwards movement has been squeezing the gold price in a narrow band for the last 3 months and last week, the donkey’s back broke sending gold hurtling downwards from $1670 to under $1600 in the course of 1 week.
That dramatic move took the gold price below its 100 Weekly Moving Average price for the first time in years if not since the beginning of this secular gold bull market and it is now quite possible that gold will test support at $1550.
If all this has got you rattled, then consider this. The 7-year chart for gold shown below reveals that gold can drop back down as far as its lower supporting trendline and crucial strong support at and above $1500, without it even putting a dent in its long-term bullmarket.
Anyone investing in gold needs to be looking at the long-term and when making long-term investment decision one should put more weight on long-term charts rather than focusing on short-term noise.
Przemyslaw Radomski of Sunshine Profits recently commented in an analysis that:
…the situation for the yellow metal remains bullish at this time. The analysis of this week’s long-term chart uncovered some bullish signals based on a study of trading patterns seen since 2006. As always, implications gleaned from long-term charts carry more weight than those from shorter time periods and are the most important factors to be considered from this week’s gold section. The bullish situation remains in place and RSI levels suggest an oversold situation similar to the major bottoms of 2011 and 2012. Although the short-term picture looks grim, the long term one is really encouraging, even though an additional short-term decline may be seen before the big rally.