Gold – Oct 27

Gold closed up strong once again and is correlating with the stock market, also up huge today on the news that the end is no longer near in Europe. The can has been kicked and we will be re-visiting Europe soon enough. Apparently Quadzilla has been contained through an interesting trick of calling the Greek 50% haircuts “voluntary” rather than mandatory. Just goes to show that when the shit is really hitting the fan the goalposts can be simply moved to prevent whatever disaster is at hand. But, do not believe there will be no cost involved in changing the rules to essentially make sovereign credit default swaps worthless. The hedgers will now simply short the debt itself which will drive up the cost of credit and exacerbate an already debt saturated system. Nothing has been solved and gold is telling us that.

Resistance at the 45 day moving average (blue) was penetrated in a rather emphatic manner, with the next level of resistance waiting at 1775. Support will be the 45 day moving average followed by the breakout level at 1680. Stochastic is over-bought and RSI is at a moderate level around 60 with more room to run. This is the 3rd day price has closed over the Bollinger band and that tells me the likelihood of a pullback or horizontal movement is high. Typically price does not spend more than 5 days above a Bollinger band and you can think of the and as a resistance level for higher prices. Price can ride the band for sometime so it cannot be used strictly as a sell indicator in this case. It is just not wise to buy above a Bollinger band if you are setting up a trade. Investors can buy at any level with no worries, Freegold valuation is in another galaxy from current price and hundreds of dollars in price is meaningless. For traders, wait for a pullback inside the Bollinger bands and a defined higher low above 1604. 1775 is going to be interesting and will embolden bulls to run hard for a re-test of the all time highs. I think this is likely now prior to the holidays where we have about 6 weeks to go before gold will chill out until the new year.

The wider view has a Fibonacci scale (magenta), an indicator of natural support and resistance zones, superimposed and shows price found natural resistance at the first level of retracement, the 38.2% level that also corresponded to chart resistance at 1680, and reversed. Then we had the breakout and a move to the 50% retrace level, with today’s price leaving that level behind. The next natural level of resistance will be the 61.8% level at, wouldn’t you know it, 1775. So we have both chart resistance and natural resistance at the 1775 level and affirms the importance of this level. A penetration and close above 1775 will be very bullish indeed. Typically if price retraces to the 61.8% level, more times than not price will retrace 100%, in our case back to 1925.

The weekly chart shows price back above the upper line of the long term trend channel and leaving the 18 week moving average in the dust. The 18 week moving average has proven to be the critical indicator of reversal during corrections. While price has overshot this moving average on the way down, it reverses before making it down lower to the 45 day moving average. It did the same this time. RSI reversed right where it has reversed in the past at the 50 level. Same with stochastic, it reversed right where it has reversed for the last 3 years. I would not be surprised to see price bracket this upper channel boundary in the next few weeks.

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