Clive Maund
gold, silver, & oil shares
GOLD ALERT - there are signs that it hit bottom today...
originally published December 22nd, 2009The action in gold today suggests that it may have just hit bottom. It dropped again steeply before noon, but this time it reversed sharply to the upside, leaving behind a distinctive “V for Victory” pattern on its fast track chart, which we can see on the small Kitco chart below. This should later appear as a bull hammer on its daily chart. A similar V pattern occurred in silver.
Today’s action means that gold held above the lower support line of the tentative downtrend channel we have delineated on the 3-month chart below on a closing basis, which it is now clear is taking the form of a bullish Falling Wedge. It did drop significantly below the support line this morning but it is the close that matters. The convergence of this channel, and the strong support in the vicinity of the rising 50-day moving average are bullish factors that are now expected to generate an upside breakout from the Wedge soon and it goes without saying that the neutralization of the extreme overbought condition that existed at the start of the month, as shown by short-term oscillators, has restored upside potential.
The 3-year chart shows the big picture and on this chart we can see the broad band of strong underlying support at the top of the preceding 20-month trading range. If we factor in that bulls may be prepared to “give chase” it is clear that gold does not have to drop right back to this support zone before turning higher again. Note that if gold does turn higher soon it is unlikely that it will storm to new highs immediately - it will probably move sideways in a consolidation pattern such as a Triangle first. Thus it might behave in a similar manner to the late 2007 consolidation Triangle.
On the 15-month chart for the HUI index we appear to be at a good entry point for stocks, with the index being close to the lower boundary of the uptrend channel. The advantages of buying here are twofold - first there are better prices on offer than at the start of the month in many stocks, and secondly, a fairly close general stop loss can be employed below the uptrend, say at 395, to get you out if the channel fails.
Posted at 3.40 pm EST on 22nd December 09.
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