Gold – 4 Aug

Gold held up real well considering the mayhem in global markets and closed down modestly. The issue with the gold chart is that there is significant factors that point to short term pullback on the way. For newbies who do not know my stance on gold, I recommend investors never sell there gold, leave that to traders. Use all pullbacks to add to positions. Use my chart analysis to find decent points to buy and disregard sell signals. Traders can use both buy and sell signals.

As I said there are issues here that should give pause to the long side. First of all, the divergence between price and both MACD and stochastic continues. Divergence happens when the trend in price disagrees with the trend present in one or more technical indicators. I have drawn the trends in magenta and it can be plainly seen that the slopes of the lines are in disagreement, price is positive and both MACD and stochastic are negative. When divergence occurs it means that something is wrong and soon either the price will reverse to come into agreement with the technical study trend or the technical study trend will reverse to come into agreement with price. It is rare for studies that are at extreme readings to make huge moves to come into agreement with price, so usually it is price that moves hard.

Another issue is that stochastic will likely cross the 80 level in this next trading day. If it does, stochastic will lose embedded status (both fast and slow line above 80 for 3 consecutive days) and will set up the 18 day moving average (dotted gray) as the support and the initial price target. That moving average is at 1611 and moving higher. what is really nice about that level is that it is above the last swing low at 1608 and price can achieve this level without violating the swing low. Also, the Fibonacci 38.2% retrace level is very near at 1606 and provides natural support. This pullback can provide an excellent low risk entry point for traders if price approaches this support zone by initiating long positions with a stop just below the swing low at 1608.

So far in the pre-market gold has recouped all the losses  and is trading at 1666. Nobody should be buying above the Bollinger band and if we open higher price will again be outside the band.

The yearly chart shows the longer term trend channel and where price currently stands within it. This trend channel is mature and has held for over a year. Price has poked through the top of the channel. If you look at the times that price corrected from the top of the channel, it usually corrects down to and through the 45 day moving average (blue) and bounces off the lower Bollinger band. To do so now, would likely mean price would need to come down to around the 1600 level as the 45 day MA continues to climb from it s current level at 1561. Look at RSI, we are at a level where it will likely reverse. Yes, it could power higher and form a “mountain range” similar to Oct- Dec last year, but the additional gains are not likely going to be worth the risk. I think patience for the trader is in order and a move to 1608 should be bought. Option plays look excellent with this kind of pullback.

The weekly chart is showing a stochastic that is hooking over. Unless today turns out to be a big day up, this indicator will continue lower towards the 80 level. If it crosses the 80 level, the embed is lost and the target becomes the 18 week moving average, currently at 1536. This moving average will continue to climb however and if you project in time it will be very close the 1600 level that we saw on the daily charts. I am not a bear, I am a bull. I would just like to see a solid trading opportunity develop here.

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